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The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09?
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Calculation of cross elasticity of demand
To calculate cross elasticity of demand, we need to know the percentage change in demand for powdered milk when the price of fresh milk changes from Rs 20 to Rs 30 per litre.
Formula for cross elasticity of demand = % change in quantity demanded of powdered milk / % change in price of fresh milk.
Let's assume that the quantity demanded of powdered milk decreases from 1000 units to 950 units when the price of fresh milk increases from Rs 20 to Rs 30 per litre.
% change in quantity demanded of powdered milk = ((950-1000)/1000) x 100 = -5%
% change in price of fresh milk = ((30-20)/20) x 100 = 50%
Substituting these values in the formula, we get:
Cross elasticity of demand = (-5% / 50%) = -0.1
Interpretation of cross elasticity of demand
The negative sign of cross elasticity of demand indicates that powdered milk is a substitute for fresh milk, i.e., when the price of fresh milk increases, the demand for powdered milk increases. The absolute value of cross elasticity of demand is less than 1, which indicates that the two goods are not very closely related in terms of demand.
To calculate cross elasticity of demand, we need to know the percentage change in demand for powdered milk when the price of fresh milk changes from Rs 20 to Rs 30 per litre.
Formula for cross elasticity of demand = % change in quantity demanded of powdered milk / % change in price of fresh milk.
Let's assume that the quantity demanded of powdered milk decreases from 1000 units to 950 units when the price of fresh milk increases from Rs 20 to Rs 30 per litre.
% change in quantity demanded of powdered milk = ((950-1000)/1000) x 100 = -5%
% change in price of fresh milk = ((30-20)/20) x 100 = 50%
Substituting these values in the formula, we get:
Cross elasticity of demand = (-5% / 50%) = -0.1
Interpretation of cross elasticity of demand
The negative sign of cross elasticity of demand indicates that powdered milk is a substitute for fresh milk, i.e., when the price of fresh milk increases, the demand for powdered milk increases. The absolute value of cross elasticity of demand is less than 1, which indicates that the two goods are not very closely related in terms of demand.
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The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09?
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The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09?.
The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases from Rs 20 to Rs 30 per litre is equal to a) 1.05 b) -1.05 c) -2.09. d) 2.09?.
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