Answer to Question #292638 in Microeconomics for Ghjutgbn

Question

Suppose the price of good x rises by 13% leading to a 11% increase in the demand for good y.  Calculate the cross elasticity of demand between goods x and y and determine whether they are substitutes or complements.

Answer 1

Cross price elasticity of demand$=\frac{11\%}{13\%}\\=0.85$

The goods x and y are substitutes