Test Index

WAEC Economics 2011 Paper

Question : 7

Total: 44

Solution:

Concept:

Cross elasticity of demand measures how the quantity demanded of one good responds to a price change in another good.

Explanation:

Formula: Cross elasticity

= \frac{\% \text{ change in quantity demanded of Schnapps}}{\% \text{ change in price of Whiskey}}

Given: Price of Whiskey rises by

20\%

and quantity demanded of Schnapps rises by

30\%

Therefore, cross elasticity

= \frac{30}{20} = 1.5

Since the value is positive, Whiskey and Schnapps are substitutes.

Answer:

D. 1.5

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