Give an example of cross-price elasticity of demand that involves a substitute and another that involves a complement. Calculate a sample cross-price elasticity of demand for each.

What will be an ideal response?


Examples will vary but should show a thorough understanding of how cross-price elasticity of demand relates to substitutes and complements. For example, the price for orange juice could increase by 5 percent, causing an increase in demand for apple juice of 10 percent. The resulting cross-price elasticity of demand is +2 (+10% ¸ +5% = +2%). The goods are substitutes because the price of one good and the demand for the other move in the same direction. The price for tennis racquets could decrease by 7 percent causing an increase in demand for tennis balls of 21 percent. The resulting cross-price elasticity of demand is –3 (+21% ¸ –7% = –3). The goods are complements because the price of one good and the demand for the other move in opposite directions.

Economics

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When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was referring to

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When the unemployment rate falls to the full-employment level:

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Economics