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:

  1. increase by 5% This would require that the cross price elasticity be +1; meaning the goods are substitutes, which contradicts the information given.
  2. increase by 10% This would require that the cross price elasticity be +2.
  3. decrease by 2% This would require that the cross price elasticity be -0.4.
  4. decrease by 5% This would require that the cross price elasticity be -1
  5. decrease by 10% As we learned above, this is the correct answer.
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