DP Economics Questionbank

Discuss the importance of price elasticity of demand and cross price elasticity of demand for a firm’s decision making.

Table 1 provides information about Good X and Good Y, which are related goods.

Table 1

Using Table 1, calculate the cross price elasticity of demand between Good X and Good Y when the price of Good X increases.

Examine the significance of both cross price elasticity of demand and income elasticity of demand for a firm.

Explain how the value of the cross price elasticity of demand (XED) for a particular good is determined by its relationship to other goods.

Widgets and Pidgets have negative cross price elasticity of demand (XED).
Explain how the demand function for Widgets, Qd = 249 − 4P, is likely to change as a result of an increase in the price of Pidgets.

Evaluate the importance of cross price elasticity of demand for a business selling a good if the price of a related good increases.