Mathematics · Elasticity of Demand
Consider the demand function for Good A: QA = 100 − 2PA + 0.2Y + 0.3PB with PA = 6, Y = 500, PB = 10 (so QA = 191). Calculate the cross-price elasticity of demand for Good A with respect to PB and determine the nature of the relationship between Good A and Good B:
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- 1eAB ≈ +0.016; A and B are complements
- 2eAB ≈ +0.016; A and B are substitutes✓
- 3eAB ≈ −0.016; A and B are complements
- 4eAB ≈ +0.157; A and B are substitutes
Correct answer
eAB ≈ +0.016; A and B are substitutes
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