Answer to Question #70378 in Economics for Jake Chambers

Question

Suppose the price of computers and office equipment decreased by 10% and, as a result, the demand for secretaries decreased by 5%. Calculate the cross-wage elasticity of demand for secretaries. Interpret your answer. (i.e. What does this tell us about the relationship between computers/office equipment and secretaries?)

Answer 1

The cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus.
In this case the cross-wage elasticity of demand for secretaries will be: -5%/-10% = 0.5.
Positive cross elasticity denotes two substitute products.