Question

Suppose the cross-price elasticity of travelling by bus and travelling by train is 0. 7. If the price of traveling by bus increases by 40%, how much would the quantity of traveling by train change?.

Answer 1

The percentage change in quantity demand of traveling by train is 28%

How to calculate cross elasticity of demand

Cross price elasticity of demand = % change in quantity demanded for Product A / % change in price of product B

• Cross-price elasticity = 0.7
• Percentage change in price of bus = 40%
• Percentage change in demand of train = x%

So,

0.7 = x % / 40%

cross product

0.7 × 40 = x

28% = x

x = 28%

Therefore, the percentage change in demand of train is 28%

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