Suppose that the cross price elasticity of demand between ski lift tickets and ski rentals is negative 0.20 What would you expect to happen to the sales of ski rentals if the price of ski lift tickets rises by 15 percent?
Part 2
The demand for ski rentals would---raise or fall---.
Part 1: If the cross price elasticity of demand between ski lift tickets and ski rentals is negative 0.20, this means that they are complementary goods. A 15 percent increase in the price of ski lift tickets would lead to a decrease in the demand for ski rentals.
Part 2: The demand for ski rentals would fall.
fall--- percent (Enter your response rounded to one decimal place.)
To calculate the percentage fall in demand for ski rentals, we need to multiply the cross price elasticity of demand (-0.20) by the percentage change in price of ski lift tickets (15%).
Percentage fall = Cross price elasticity of demand * Percentage change in price
= -0.20 * 15%
= -3%
Therefore, we would expect the demand for ski rentals to fall by approximately 3%.
Part 1:
To determine the effect of a price change on the sales of ski rentals, we can use the concept of cross price elasticity of demand. The negative value of cross price elasticity suggests that ski lift tickets and ski rentals are complementary goods, meaning that they are typically consumed together.
A cross price elasticity of -0.20 implies that a 1% increase in the price of ski lift tickets leads to a 0.20% decrease in the demand for ski rentals.
Given that the price of ski lift tickets has increased by 15 percent, we can calculate the expected change in the demand for ski rentals as follows:
Expected change in demand for ski rentals = -0.20 * 15% = -3%
Part 2:
Since the cross price elasticity of demand between ski lift tickets and ski rentals is negative, an increase in the price of ski lift tickets would lead to a decrease in the demand for ski rentals. Therefore, the sales of ski rentals would fall if the price of ski lift tickets rises by 15 percent.
To predict the impact on the sales of ski rentals when the price of ski lift tickets increases by 15 percent, we can use the concept of cross price elasticity of demand.
Cross price elasticity of demand measures the responsiveness of the quantity demanded for one good when the price of another good changes. A negative cross price elasticity implies a substitute relationship, meaning the goods are related but compete with each other.
In this case, the cross price elasticity of demand between ski lift tickets and ski rentals is given as -0.20. This means that for a 1 percent increase in the price of ski lift tickets, there would be a 0.20 percent decrease in the quantity demanded for ski rentals.
Now, let's apply this information to answer the question:
1. Calculate the percentage increase in the price of ski lift tickets: 15 percent increase.
2. Multiply the percentage increase in price by the cross price elasticity (-0.20): 15% * -0.20 = -3%
3. Interpret the result: This means that with a 15 percent increase in the price of ski lift tickets, we would expect the quantity demanded for ski rentals to decrease by around 3 percent.
To answer Part 2 of the question, if the price of ski lift tickets rises by 15 percent, we would expect the demand for ski rentals to fall.