The price of apples rises from 1.00 per lb to 1.50 per lb. As a result the qauntity fdemande for oranges rises from 8000 to 9500 per week. Calculate the cross price elasticity for apples and oranges.
To calculate the cross price elasticity of apples and oranges, you need to know the percentage change in the quantity demanded of oranges and the percentage change in the price of apples.
First, let's calculate the percentage change in the quantity demanded of oranges.
Percentage Change in Quantity Demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) * 100
Using the given information:
Old Quantity Demanded = 8000
New Quantity Demanded = 9500
Percentage Change in Quantity Demanded = ((9500 - 8000) / 8000) * 100
Now, let's calculate the percentage change in the price of apples.
Percentage Change in Price = ((New Price - Old Price) / Old Price) * 100
Using the given information:
Old Price of Apples = 1.00 per lb
New Price of Apples = 1.50 per lb
Percentage Change in Price = ((1.50 - 1.00) / 1.00) * 100
Now that we have both percentage changes, we can calculate the cross price elasticity of apples and oranges.
Cross Price Elasticity = (Percentage Change in Quantity Demanded of Oranges / Percentage Change in Price of Apples)
Substituting the values:
Cross Price Elasticity = (((9500 - 8000) / 8000) * 100) / (((1.50 - 1.00) / 1.00) * 100)
Simplifying, we get:
Cross Price Elasticity = ((1500 / 8000) * 100) / (0.5 * 100)
Cross Price Elasticity = (18.75) / (0.5)
Cross Price Elasticity = 37.5
Therefore, the cross price elasticity of apples and oranges is 37.5.