Answer:
Option (a) is correct.
Explanation:
Given that,
Initial price of good X = $6
New price of good X = $4
Initial quantity demanded of good Y = 30 units
New quantity demanded of good Y = 40 units
Average price of good X:
= ($6 + $4) ÷ 2
= $10 ÷ 2
= $5
Average quantity demanded for good Y:
= (30 units + 40 units) ÷ 2
= 70 units ÷ 2
= 35
Cross-price elasticity of demand:
= (change in quantity demanded ÷ Average quantity demanded) ÷ (Change in price ÷ Average price)
= [(40 units - 30 units) ÷ 35] ÷ [(4 - 6) ÷ 5]
= (10 ÷ 35) ÷ (-2 ÷ 5)
= 0.2857 ÷ (-0.4)
= -0.71
Therefore, the cross-price elasticity of demand is -0.71, and X and Y are complement goods.
