00:01
So here we're talking about elasticity.
00:02
In question one, we know that there is a percent change in the quantity of a equals to 5%.
00:10
We also know that the price of good b is increasing by 10%.
00:16
Right.
00:17
So the cross price elasticity of demand is simply this ratio, right? this is the a, b cross price elasticity, right? because it's measuring how the quantity of one.
00:30
Good responds to a change in the price of another good.
00:33
That is across the two goods.
00:36
So the cross price elasticity here is simply 0 .5, right? this is greater than zero, right? it's implying that the quantity demand of a is increasing.
00:47
Demand is rising, right? the price of b is going up, and in response, people want more a.
00:55
What does that mean? well, if the price of b goes up, we should expect the quantity demanded of b to go down.
01:02
That's the law of demand.
01:04
But we observe that the quantity of a is going up.
01:07
You see how these two things are opposites? this means that they're substitutes, right? they are going in opposite directions.
01:18
We buy less b...