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a. Suppose that when the price of peanut butter rises from $2 to $3 per jar, the quantity of jelly purchased falls from 20 million jars to 15 million jars. Instructions: Round your answer to two decimal places. If you are entering a negative number be sure to include a negative sign (-) in front of that number. The cross-price elasticity of demand between peanut butter and jelly using the mid-point method is:_______ .
The goods are:_______ .
b. Suppose that when the price of peanut butter rises from $2 to $3 per jar, the quantity of jelly purchased increase from 15 million jars to 20 million jars. Instructions: Round your answer to two decimal places. If you are entering a negative number be sure to include a negative sign (-) in front of that number. The cross-price elasticity of demand between peanut butter and jelly using the mid-point method is:_______ .

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jepessoa

Answer:

a) cross price elasticity = {(QJ2 - QJ1) / [(QJ2 + QJ1)/2]} / {(PB2 - PB1) / [(PB2 + PB1)/2]}

cross price elasticity = {(15 - 20) / [(15 + 20)/2]} / {(3 - 2) / [(3 + 2)/2]} = (-5/17.5) / (1/2.5) = -0.71 complements

b) cross price elasticity = {(QJ2 - QJ1) / [(QJ2 + QJ1)/2]} / {(PB2 - PB1) / [(PB2 + PB1)/2]}

cross price elasticity = {(20 - 15) / [(20 + 15)/2]} / {(3 - 2) / [(3 + 2)/2]} = (5/17.5) / (1/2.5) = 0.71 substitutes

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