VERY URGENT! PLZ HELP IN ECONOMICS QUESTION NOV 2007 P1 Q6

[arvind0708]

6 A fall in the price of cars causes the demand for petrol to rise by 20 %. The cross-elasticity of
demand between cars and petrol is –2.
Which change in car prices has brought this about?
from to
A $6000 $5000
B $5500 $4500
C $5000 $4500
D $5000 $4000

 

[nirajgrg]

Re: VERY URGENT! PLZ HELP IN ECONOMICS QUESTION NOV 2007 P1

ans is C
cross elasticity = % change in demand for petrol / % change in price of car
hence, % fall in price of car = % change in demand / cross elasticity
= 20/ -2 = 10%
10% of 5000 = 500
so price of car fell from 5000 to 4500