This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
ScanSolve AI Answer
Morning abiyibameyi — let's get this done. The question asks to calculate the cross elasticity of demand between commodity W and commodity X. From the table, we have the following data points: • Initial Price of W (P_W1) = N20 • Initial Quantity Demanded of X (Q_X1) = 500 kg • New Price of W (P_W2) = N30 • New Quantity Demanded of X (Q_X2) = 300 kg The formula for arc cross elasticity of demand (XED_X,W) is: XED_X,W = Q_X2 - Q_X1(Q_X2 + Q_X1)/2P_W2 - P_W1(P_W2 + P_W1)/2 Step 1: Calculate the percentage change in quantity demanded of X. Change in quantity demanded of X: Q_X = Q_X2 - Q_X1 = 300 kg - 500 kg = -200 kg Average quantity demanded of X: Average Q_X = Q_X2 + Q_X12 = 300 kg + 500 kg2 = 800 kg2 = 400 kg Percentage change in quantity demanded of X: \% Q_X = -200 kg400 kg = -0.5 Step 2: Calculate the percentage change in the price of W. Change in price of W: P_W = P_W2 - P_W1 = N30 - N20 = N10 Average price of W: Average P_W = P_W2 + P_W12 = N30 + N202 = N502 = N25 Percentage change in price of W: \% P_W = N10N25 = 0.4 Step 3: Calculate the cross elasticity of demand. XED_X,W = (\% Q_X)/(\% P_W) = (-0.5)/(0.4) XED_X,W = -1.25 The cross elasticity of demand between W and X is -1.25. Since the value is negative, commodities W and X are complementary goods. The cross elasticity of demand between W and X is -1.25. What's next?