Economics (AS & A Level) · May / June 2021 · Paper 11 · Question 10
9708Price elasticity, income elasticity and cross elasticity of demand
A government introduces a subsidy for product X and the market price of X falls by 5%. The cross elasticity demand for product Y, with respect to the price of product X, is +0.4. What will happen to the demand for product Y?
- AIt will decrease by 2%.
- BIt will decrease by 12.5%.
- CIt will increase by 2%.
- DIt will increase by 12.5%.
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Correct answer: A. It will decrease by 2%.
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