Given:

Q= 10-2P+Ps

Ps= $2

a) At P= $1, Q=10-2+2= 10 units

 Price Elasticity of Demand = (Change in quantity demanded/Change in price) * (Price/Quantity)

Therefore, Price Elasticity of Demand = -2* (1/10) = -0.2
 Cross Price Elasticity of Demand = Change in Quantity/ Change in Price of substitute*(Price of
substitute / Quantity
Therefore, Cross Price Elasticity of Demand = 1 * (2/10) = 0.2

b) At P= $2, Q= 8 units

 Price Elasticity of Demand = (Change in quantity demanded/Change in price) * (Price/Quantity)

Therefore, Price Elasticity of Demand = = -2* (2/8) = -0.5
 Cross Price Elasticity of Demand = Change in Quantity/ Change in Price of substitute*(Price of
substitute / Quantity
Therefore, Cross Price Elasticity of Demand = 1 * (2/8) = 0.25