For the following three cases, use a midpoint formula to calculate the coefficie

Question

For the following three cases, use a midpoint formula to calculate the coefficient for the cross elasticity of demand and identify the relationship between the two goods (complement, substitute, or independent).

a) The quantity demanded for good A increases from 300 to 400 as the price of good B increases from $1 to $2. Coefficient: ___________________ Relationship: _______________________

b) The quantity demanded for good J decreases from 2000 to 1500 as the price of good K increases from $10 to $15. Coefficient:__________________ Relationship:__________________________

c) The quantity demanded for good x increases from 100 to 101 units as the price of good Y increases from $8 to $15. Coefficeint: _______________ Relationship:____________________

Explanation / Answer

a) The quantity demanded for good A increases from 300 to 400 as the price of good B increases from $1 to $2. Coefficient: 0.43 Relationship: substitute

b) The quantity demanded for good J decreases from 2000 to 1500 as the price of good K increases from $10 to $15. Coefficient: -0.71 Relationship: complement

c) The quantity demanded for good x increases from 100 to 101 units as the price of good Y increases from $8 to $15. Coefficeint: 0.02 Relationship: substitute

0.02 IS VERY LOW VALUE IN THIRD CASE, IF IT HAD BEEN ZERO WE HAVE CONSIDERED RELATIONSHIP AS INDEPENDENT. But as the value is higher than aero, I have given subsitiute

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