If the crossprie elasticity of demand between printed textbo

If the cross-pri~e elasticity of demand between printed textbooks and e-books is +.30,
(a) Are e-books and textbooks complementary (C) OrSubstiiute (S) goods?
(b) If textbook prices increase by 6 percent, by how much will e-book demand change?

Solution

a) A cross price elasticity measures the responsiveness of the quantity demanded for a good to a change in the price of another good. It is measured as the percentage change in quantity demanded for the first good that occurs in response to a percentage change in price of the second good.

A cross price elasticity of demand of +0.30 means that a 10% increase in the price of printed textbooks will result in a 3% increase in the demand of e-books. A positive cross price elasticity of demand means that they are substitute goods.

b) The formula to calculate cross price elasticity of demand:

Cross price elasticity of demand = Percentage change in demand of good B / Percentage change in price of good A

0.30 = Percentage change in demand of good B / 6%

Percentage change in demand of e-books = 0.30 * 6%

Percentage change in demand of e-books = 1.8% is the increase in demand for e-books.

I hope my solution solves your query.