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Assume that as manager at a company supplying processed chicken, you are aware that a rise...

Assume that as manager at a company supplying processed chicken, you are aware that a rise in the cost of feeding steers is predicted to lead to a 15 percent rise in the price of beef. Your analyst have estimated the cross-price elasticity of demand between the demand for chicken and the price of beef is 0.12. Based on these data, you expect the demand of chicken to increase by _________________%.

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Answer #1

Answer: cross elasticity of demand = % change in quantity demanded of a good / % change in the price of relative good

% change in quantity demand of a good (chicken) = ?

% change in price of relative good (beef) = 15%

cross elasticity between beef and chicken is = 0.12

putting all the values in the formula of cross elasticity :

0.12 = % change in quantity demanded of chicken / 15

% change in quantity demanded of chicken = 15 * 0.12

% change in quantity demanded of chicken = 1.8 %

if the price of beef increases by 15 % than we will expect the demand of chicken to increase by 1.8%

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