normally i buy 5 burgers per month. but when the price of a pizza decreases from $5 to $3, i will buy 3 burgers instead. what is my cross elasticity of demand of burgers? what is the relationship between burgers and pizza? use mid-point method.

Respuesta :

The relationship between burgers and pizza is that they are complementary goods as the elasticity of demand of burgers is 1. Hence cross elasticity of demand of burgers is negative.

Define cross elasticity of demand.

The cross elasticity of demand assesses how responsively consumers purchase one good when the price of another one changes. By dividing the percentage change in the quantity required by the percentage change in price, the price elasticity of demand is determined. Demand is regarded as elastic if the quotient is larger than or equal to one. The effect of the pricing of these other products is helped to be determined by cross elasticity of demand. When one of the goods' prices changes, it assesses the link between the two.

Midpoint method:

percent change in quantity =[(Q₂ - Q₁)/ Q₂ + Q₁) ÷2 ]× 100

percent change in price = [(P₂ - P₁) /(P₂ + P₁)  ÷2] × 100

So, Price of pizza = [(5-3)/(5+3)÷2] × 100 =2×25 = 50

And Change in price of burger = [(5-3)/(5+3)÷2] × 100 =2×25 = 50

cross elasticity of demand = 50÷50 = 1

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