Answer to Question #284316 in Microeconomics for Fazi

Question

If a 12 percent rise in the price of orange juice decreases the quantity of orange juice demanded

by 22 percent and increases the quantity of apple juice demanded by 14 percent, calculate the

a. Price elasticity of demand for orange juice.

b. Cross elasticity of demand for apple juice with respect to the price of orange juice.

Answer 1

Solution:

a.). Price elasticity of demand for orange juice:

Price elasticity of demand for orange juice = $=\frac{\%\;change\; in\; quantity\; demanded}{\%\; change\; in\; price}$

= $\frac{-22\% }{12\% } = -1.8$

Price elasticity of demand for orange juice = 1.8

 

b.). Cross elasticity of demand for apple juice to the price of orange juice:

Cross elasticity of demand for apple juice to the price of orange juice = $=\frac{\%\;change\; in\; quantity\; demanded\; for\; apple\; juice}{\%\; change\; in\; price\; of\; orange\; juice}$

= $\frac{14\% }{12\% } = 1.2$

 

Cross elasticity of demand for apple juice to the price of orange juice = 1.2