Question

If butter and margarine have a cross elasticity of demand of 2 and the price of butter rises from Rs.20 per 100g to Rs.30 per 100g, the percentage change in demand for margarine will be

Answer 1

Answer:

100%

Explanation:

Given,

cross elasticity=2

find a %change in the price of butter per 100gm is 50%.

cross elasticity=(%change in the quantity of margarine demand)/%change in the price of butter.

so,

%change in demand for margarine=(2*50)%=100%