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Thread: Cross-Price Elasticity of Demand: Which figures to use? ($50/gallon of crude oil)

  1. #1
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    Question Cross-Price Elasticity of Demand: Which figures to use? ($50/gallon of crude oil)

    So here is the question.

    Be sure to also include a calculation of the cross-price elasticity of the alternative energy source and oil. Assume the current price of oil is $50/gallon of crude oil. If the price increases to the profit-maximizing price, the quantity demanded of the alternative energy source increases by 20%. Explain if these goods are complementary goods, substitute goods, or non-related goods. If there is a relationship, indicate whether the relationship is weak or strong. Justify your answer with an explanation based on the elasticity figure.
    is the 20% increase my q1 or my q2 and how do i determine what the other "q" is

    P1 = 50 Q1?
    P2 = 57.50 (this is my calculated profit maximizing market price) Q2?

    I know the formula and understand the premise to calculate if I have all the fiqures.. It is (p2-p1)/p1*100
    ____________ = cross price elas dmnd
    (q2-q1)/q1*100




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    Elite Member stapel's Avatar
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    Cool

    Quote Originally Posted by cval View Post
    Assume the current price of oil is $50/gallon of crude oil. If the price increases to the profit-maximizing price, the quantity demanded of the alternative energy source increases by 20%. Explain if these goods are complementary goods, substitute goods, or non-related goods. If there is a relationship, indicate whether the relationship is weak or strong. Justify your answer with an explanation based on the elasticity figure. (Be sure to also include a calculation of the cross-price elasticity of the alternative energy source and oil.)



    is the 20% increase my q1 or my q2 and how do i determine what the other "q" is
    We can help you with the math. You may need to provide the specifics from your particular course. For instance, it can be helpful to let us know for what the variables stand. Does "qi" stand for "quantity"? Do "q1" and "q2" stand for "initial" and "final" quantities, respectively? When I looked up "cross-price elasticity", I could not locate a source which used these variables, those this lesson mentions them in the context of not having been given a percentage. So clearly your textbook and instructor are doing something different from the norm. We'll need you to tell us what that is.

    Quote Originally Posted by cval View Post
    P1 = 50 Q1?
    What does this equation mean? For what does the query-mark stand?

    Quote Originally Posted by cval View Post
    P2 = 57.50 (this is my calculated profit maximizing market price) Q2?
    Same questions.

    Quote Originally Posted by cval View Post
    I know the formula and understand the premise to calculate if I have all the fiqures.. It is (p2-p1)/p1*100
    ____________ = cross price elas dmnd
    (q2-q1)/q1*100
    As you saw after you posted your question, the forum's back-end script does not preserve space-bar formatting; the extra spaces were deleted upon posting.

    To learn how to format math as text, you can use the article referenced in the "Read Before Posting" announcement (which is the article here). For now, I think that you meant the formula to be the following:

    . . . . .[tex]\dfrac{\left(\dfrac{p_2\, -\, p_2}{100\, p_1}\right)}{\left(\dfrac{q_2\, -\, q_1}{100\, q_1}\right)}[/tex]

    You say that this is "the formula", but for what is this "the formula"? You also say that you "understand the premise to calculate", but I'm afraid I don't understand what this means...?

    Please be complete. Thank you!

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    For reasons known only to themselves, economists use mathematical conventions different from those used by mathematicians and physical scientists. Moreover, economists use "elasticity" in two different senses, namely point and arc elasticities. We have no idea what notation or concepts are being used in your class. Here is a good starting point.

    https://en.m.wikipedia.org/wiki/Cros...city_of_demand

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