When the cost of chocolate making machines fell by 10 percent, the demand for dessert makers...

When the cost of chocolate making machines fell by 10 percent, the demand for dessert makers fell by 25
percent. What is the cross-wage elasticity of demand for dessert makers in this case? Are chocolate making
machines and dessert makers gross substitutes or gross complements?

Expert Solution

Cross elasticity of demand tells the change in quantity demanded of one good when price of another good changes.

It is calculated by formula = Percentage change of quantity demanded of dessert makers / Percentage change in price of chocolate machine.

=-25%/-10%

=2.5

Chocolate making machines and dessert makers are substitute products because decrease in price of one good led to decrease in demand for other good as well. Also from above calculation cross elasticity demand of substitute good is positive.

Rahul Sunny answered 2 years ago

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