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AP Microeconomics

Category - Microeconomics

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Which of the following measures how much the price of one good affects the quantity demanded of another good?

Income elasticity of demand
Cross-price elasticity of demand
Elasticity of supply
Perfectly elastic demand

Explanation

Answer - B - The cross-price elasticity of demand measures how much the price of one good affects the quantity demanded of another good.

Key Takeaway: The cross-price elasticity of demand measures the relationships between substitutes and complements. By measuring how much the price of one good affects the quantity demanded of another good, economists and business owners can try to predict what may happen to their product within the marketplace. The formula for cross-price elasticity of demand is: (Percentage change in quantity demanded of good X) divided by the (Percentage change in price of good Y).

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