Answer to Question #77548 in Microeconomics for loveleen kaur

Question

Suppose that the price of President’s Choice macaroni and cheese decreased from $10 to $8 per case, and at the same time, the quantity of Kraft macaroni and cheese sold dropped from 192 to 128 cases.
a) What is the cross-elasticity of demand between the two products? Round your answer to 2 decimal places.
b) What is the relationship between the two products?

Answer 1

Cross-elasticity of demand = (10+8)/(192+128)*(128-192)/(10-8)
Cross-elasticity of demand=((192-128)/192)/((10-8)/10)=1.67
Two products are substitutes because their cross-elasticity of demand has a positive value.