Answer to Question #95698 in Microeconomics for SHAHADAT HOSSEN

Question

What is price elasticity of demand? Mention the determinants of price elasticity of
demand. Suppose, the cross elasticity of demand for beef with respect to chicken is E=
+1.5. (i) If price of chicken is increased by 40%, what will happen to the demand for beef?
(ii) What kind of relationship exists between beef and chicken in this case?

Answer 1

Price Elasticity of demand. 

The price elasticity of demand is the measure of sensitivity of the quantity demanded to changes in the price .The determinants of price elasticity of demand are ;availability of close substitutes ,importance of product cost to the budget of a person and the period time under consideration. 

The cross elasticity of demand for beef to chicken is positive in this case. When the price of chicken increases ,the demand for the beef will increase.this is because the positive cross elasticity of demand implies that beef and chicken are substitutes. 

Reference 

Willy Kenton,<Price Elasticity of Demand>2 Oct 2019;https://www.investopedia.com