Home › CA Foundation › Business Economics › Elasticity of Demand › When the price of brand Imperial rises by 10%, t…
When the price of brand Imperial rises by 10%, the demand for brand Royal rises by 15%. The cross-price elasticity of Royal with respect to Imperial is:
A-1.5, so they are complements
B+1.5, so they are substitutes
C+0.67, so they are substitutes
D-0.67, so they are complements
Answer & Solution
Correct answer: B. +1.5, so they are substitutes
1. Use $E_c = \dfrac{\%\ \text{change in quantity of } X}{\%\ \text{change in price of } Y}$.
2. Substitute: $E_c = \dfrac{15\%}{10\%}$.
3. This equals $+1.5$.
4. A positive cross elasticity means the two brands are substitutes.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.34_
Related questions
Using the Point method on a straight-line demand curve AB, elasticity at point P is given Under the Total Outlay method, demand is said to be unitary elastic when:Which of the following is NOT one of the four methods of measuring elasticity of demand liCross elasticity of demand (Ec) measures:Income elasticity of demand (Ey) is defined as:If proportionate change in demand equals proportionate change in price, the demand is:If a small change in price produces a much larger proportionate change in demand, the demaIf the price of a good changes and demand does not change at all, the price elasticity of