Answer to Question #305450 in Microeconomics for saanvi

Question

1.     Rahul purchases only 2 goods: ice cream and chocolates. If own price elasticity of demand for chocolates is 1, what is the cross price elasticity of demand for ice-cream. Show your calculation/reasoning.

Answer 1

the cross-elasticity of chocolate demand relative to the price of ice cream is equal to the percentage change in the amount of demand for chocolate divided by the percentage change in the price of ice cream.

if the price elasticity of demand for chocolate is 1, then we know that the percentage change in the amount of chocolate to the percentage change in the price of chocolate is the same. But we do not have any data in numbers. If these data were available, we would determine that ΔQuantity of chocolate demand (%) = 1 / ΔChocolate prices (%)

Analytically, it can be determined that the cross-elasticity of demand for chocolate in relation to the price of ice cream = 1 / (ΔChocolate prices (%) * ΔIce cream prices (%))