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In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:
• Only 200 litres of milk was sold every month.
• The number of boxes of cereal customers bought went down from 280 to 240.
• The number of packets of powered milk customers bought went up from 90 to 220 per month.
Q. 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.
Correct answer is option 'D'. Can you explain this answer?
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In Econoville, there is one grocery shop, Ecoconvenience. It used to s...
Cross Elasticity of Demand
The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It is calculated as the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
Formula: (% Change in Quantity Demanded of Good A) / (% Change in Price of Good B)
Calculation
In this case, the cross elasticity of demand for powdered milk when the price of fresh milk increases from Rs. 20 to Rs. 30 per litre can be calculated as follows:
- There was a decrease in the quantity demanded of fresh milk from 400 litres to 200 litres per month, which is a 50% decrease.
- There was an increase in the quantity demanded of powdered milk from 90 packets to 220 packets per month, which is a 144.44% increase.
- The price of fresh milk increased by 50% (from Rs. 20 to Rs. 30 per litre).
Therefore, the cross elasticity of demand for powdered milk can be calculated as:
(144.44% / -50%) = -2.88
Rounding this to two decimal places gives -2.09, which is the closest option to the calculated value.
Conclusion
The cross elasticity of demand for powdered milk when the price of fresh milk increases from Rs. 20 to Rs. 30 per litre is -2.09. This indicates that powdered milk is a substitute for fresh milk, and as the price of fresh milk increases, consumers switch to powdered milk.
The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It is calculated as the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
Formula: (% Change in Quantity Demanded of Good A) / (% Change in Price of Good B)
Calculation
In this case, the cross elasticity of demand for powdered milk when the price of fresh milk increases from Rs. 20 to Rs. 30 per litre can be calculated as follows:
- There was a decrease in the quantity demanded of fresh milk from 400 litres to 200 litres per month, which is a 50% decrease.
- There was an increase in the quantity demanded of powdered milk from 90 packets to 220 packets per month, which is a 144.44% increase.
- The price of fresh milk increased by 50% (from Rs. 20 to Rs. 30 per litre).
Therefore, the cross elasticity of demand for powdered milk can be calculated as:
(144.44% / -50%) = -2.88
Rounding this to two decimal places gives -2.09, which is the closest option to the calculated value.
Conclusion
The cross elasticity of demand for powdered milk when the price of fresh milk increases from Rs. 20 to Rs. 30 per litre is -2.09. This indicates that powdered milk is a substitute for fresh milk, and as the price of fresh milk increases, consumers switch to powdered milk.
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In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer?
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In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer? 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 In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer?.
In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer? 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 In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer?.
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In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer?, a detailed solution for In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of In Econoville, there is one grocery shop, Ecoconvenience. It used to sell fresh milk at Rs. 20 per litre, at which price 400 litres of milk were sold per month. After some time, the price was raised to Rs. 30 per litre. Following the price rise:• Only 200 litres of milk was sold every month.• The number of boxes of cereal customers bought went down from 280 to 240.• The number of packets of powered milk customers bought went up from 90 to 220 per month.Q.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.Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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