MCQ for Economics Nov 2008 Paper 1 Question 8

[arvind0708]

8 The price of good X rises by 10 %. As a result, the demand for a substitute good Y rises by 20 %.
What is the cross-elasticity of demand for good Y with respect to good X?
A +2 B +0.5 C –0.5 D –2

how to calculate XED.

 

[Xenon]

XED= % change in demand of good A/ % change in price of good B
= 20%/10%
=2
The XED for substitute good is +ve while it is -ve for complementary goods.
Ans: A