Suppose the demand function is given by Qxd 10Px09 Py05 M02

Suppose the demand function is given by Qxd = 10Px0.9 Py0.5 M0.22 H. Then the cross-price elasticity between goods x and y is: Select one: a. 0.9. b. 0.5. c. 0.22. d. -0.5.

Solution

In the given demand function Py denotes the price of related good. In the given case related good is Good Y. The coefficient with respect to Py that is 0.9 denotes the value of cross-price elasticity of demand between goods x and y.

Thus, the cross-price elasticity of demand between goods x and y is 0.9.

Hence, the correct answer is option (a).