A 10% increase in the price of pizza causes a 10% drop in the quantity of...
A 10% increase in the price of pizza causes a 10% drop in the quantity of both pizza and beer sold. Describe elasticities and the nature of the two products.
Homework Answers
Answer
elasticity of demand =%change in quantity of the good /%change in the price of the good
elasticity of demand for Pizza=-10/10=-1=1 (absolute value)
the demand is unit elastic
======
Cross price elasticity of demand =%change in quantity of one good/ %change in the price of other good
=-10/10
=-1
the cross-price elasticity of demand is negative so the goods are complement goods.
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