A 3 percent increase in the price of digital apps reduces the amount of tablet devices demanded by 7 percent.
The cross price elasticity of demand is ---
. (Enter your response rounded to two decimal places and include a minus sign if necessary.)
The cross price elasticity of demand is approximately -2.33.
how did you got that answer
To calculate the cross price elasticity of demand, we use the following formula:
Cross Price Elasticity of Demand = ((% Change in Quantity Demanded of Tablet Devices) / (% Change in Price of Digital Apps))
In this case, the % Change in Quantity Demanded is -7% (because the amount of tablet devices demanded decreases) and the % Change in Price of Digital Apps is 3% (because the price increases by 3%).
Plugging these values into the formula:
Cross Price Elasticity of Demand = (-7% / 3%) = -2.33.
Therefore, the cross price elasticity of demand is approximately -2.33.
The cross price elasticity of demand indicates that tablet devices and digital apps are---unrelated goods, complements or substitutes---.
The cross price elasticity of demand indicates that tablet devices and digital apps are substitutes. This is because an increase in the price of digital apps leads to a decrease in the quantity demanded of tablet devices, implying that consumers are substituting tablet devices with digital apps as they become relatively more expensive.
Since the cross price elasticity is negativelong dash
i.e.,
as the price of digital apps increases, the quantity demanded of tablets decreaseslong dash
the
products are complements.