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Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?

Cross-price elasticity measures percentage change in quantity demanded of one good as aresult of percentage change in price of another good. The formula of cross-price elasticity is usedin case of substitute goods and complement goods.If only one shoe could be purchased at a time, then price of one shoe could affect demand foranother shoe. Thus, both shoes can be considered as substitute good for each other. The cross-price elasticity for both goods will be fairly unitary because of left shoe will fall, thendemand for right shoe will rise and if price for right shoe will fall, then demand for left shoe willrise. The proportion of change will be same in both cases. Hence, cross-price elasticity will beunitary.

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Chapter 5

Elasticity

How Markets Work

Markets and Welfare

Siddhesh J.

October 10, 2020

Gonzales O.

January 20, 2021

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all right. Problem number 32 from chapter five. It's asking. Suppose you could buy shoes one of the time rather than impairs? What do you predict? The cross price elasticity for less for left shoes and right shoes would be So I've gone ahead and drawn out the formula for cross price elasticity. Um, and that's gonna be percent change in quantum demanded of good. A divided by percent change in price of good B. Uh, now, let's think logically about shoes. So a left shoe and a right shoe are going to be compliments. Right? Because if you buy a left shoe, you're gonna want to buy a right shoe. And if you buy right, sure. You're gonna want to buy a left. You're not gonna wanna buy two left shoes, you know? Come on. Two by two, right shoes. You're probably not gonna want to buy just one shoe. And there is a rule that says that for compliments, the cross price elasticity of demand, uh, is going to be negative. So what do we predict? It would be here. What we predict will be negative. You can also think about this logically without knowing that rule and I just think that if an increase in the price of all right shoes occurred, what are we gonna want to do about a consumption of left cheese? So if an increase in the price of right she's happens, people are gonna want to buy fewer right shoes. And if people are buying fewer right shoes, they're gonna be in turn buying fewer left shoes because again, you don't really buy just a right shoot you by a right shoe and a

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