The price elasticity of demand for magazines is 04 The price

The price elasticity of demand for magazines is 0.4. The price elasticity of demand for newspapers is 0.3. The cross elasticity of demand for newspapers with respect to the price of a magazines is a decrease of percent. If the price of a magazine rises by 5 percent, the percentage change in the quantity demanded of newspapers in an increase of percent.

Solution

Price elasticity of demand=% change in quantity demanded of magazines/% change in price of magazines

0.4=% change in quantity demanded of magazines/5

% change in quantity demanded of magazines=5(0.4)=2% (a decrease of 2%)

Cross elasticty of demand for newspapers=% change in quantity demanded of newspapers/% change in price of magazines

0.6=% change in quantity demanded of newspapers/5

% change in quantity demanded of newspapers=0.6(5)=3% ( an increase of 3%)