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Chapter 3
Applying the
Supply-and-
Demand Model
• Example
– If a 1% increase in the price of a related good results in a
3% decrease in quantity demanded, the cross-price
elasticity of demand is
3%
3.
1%
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Cross-Price Elasticity (2 of 2)
• If the cross-price elasticity is negative, the goods are
complements.
• If the cross-price elasticity is positive, the goods are
substitutes.
Q 104 40 p 20 pt 0.01Y
Q p p
h
p Q Q
Q P 7.20
0.25 0.15
p Q 12
0.15
p t $2.40 80¢
0.15 [ 0.3]