Answer: -8.5%
Step-by-step explanation:
Step 1 - Identify variables
% change in price of Product E = -2%(decrease)
% change in quantity demanded of Product E = 14%
% change in quantity demanded of Product F = 17%.
Step 2 - Formula
Cross Price Elasticity of demand = % change in quantity demanded for Product A / % change in price of product B.
Step 3 - Computation
= % change in quantity demanded of Product F/ % change in price of Product E
= 17/-2
= -8.5 (1 d.p)
NB - We used product E's change in price because it was the one available. If both were available you could use either so long as the quantity demanded used is of the other good. That way there is still a comparison across the 2 goods.
Step 4 - Interpretation
The goods are compliments. Complimentary goods show a negative cross price elasticity because they move together. When the price of the main good increases, the demand for the other decreases because they go hand in hand.
