Upper A
4
percent increase in the price of digital apps reduces the amount of tablet devices demanded by 8
percent.
The cross price elasticity of demand is
-0.5
To calculate the cross price elasticity of demand, we need to know how the change in the price of one good affects the quantity demanded of another good. In this case, we are given that a 4 percent increase in the price of digital apps reduces the amount of tablet devices demanded by 8 percent.
The formula for cross price elasticity of demand is:
Cross Price Elasticity of Demand = (% change in quantity demanded of Good A) / (% change in price of Good B)
In this case, Good A is tablet devices and Good B is digital apps.
To calculate the cross price elasticity, we need to determine the percentage change in quantity demanded of tablet devices and the percentage change in the price of digital apps.
From the given information, we know that the price of digital apps increased by 4 percent and the quantity demanded of tablet devices decreased by 8 percent.
Plugging in the values into the formula:
Cross Price Elasticity of Demand = (-8%) / (4%)
The cross price elasticity of demand in this scenario is -2. This means that a 1 percent increase in the price of digital apps will lead to a 2 percent decrease in the quantity demanded of tablet devices. It indicates that tablet devices and digital apps are complements, as an increase in the price of digital apps leads to a decrease in the demand for tablet devices.
The cross price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. In this case, you are given that a 4 percent increase in the price of digital apps reduces the amount of tablet devices demanded by 8 percent.
To find the cross price elasticity of demand, you can use the following formula:
Cross Price Elasticity of Demand = (% Change in Quantity Demanded of Tablets) / (% Change in Price of Digital Apps)
Substituting the given values into the formula:
Cross Price Elasticity of Demand = (-8%) / (4%)
Simplifying:
Cross Price Elasticity of Demand = -2
The cross price elasticity of demand in this scenario is -2.