In this case, we are required to compute the amount by which demand
would change when the price of another good changes. Let's recall
the general version of cross price elasticity:
From the question, we know that = -2. Therefore, the goods are strongly complementary. Specifically, we
know that %
QA = -2 x %
PB. In other words, since the cross price elasticity is -2, the
change in quantity must be twice as large in percentage terms
(in the opposite direction) as the change in the price of the other
good. So, if the price of good B increases by 5%, the quantity
demanded of good A will fall by 10%.
3. If the cross price elasticity between goods B and A is -2 and the price of good B increases by 5%, the quantity demanded of good A will: