An airline operates flights between London and Edinburgh. Following a 10% increase in the price of high-speed rail tickets on the same route, the monthly quantity of flight tickets demanded rises from 50,000 50,000\,50,000 to 56,00056,00056,000.
Assuming all other factors remain constant, what is the cross elasticity of demand (XEDXEDXED) between flights and rail tickets, and what relationship does this coefficient indicate?
XED=+0.83XED = +0.83XED=+0.83, and the goods are substitutes.
XED=−1.2XED = -1.2XED=−1.2, and the goods are complements.
XED=+1.2XED = +1.2XED=+1.2, and the goods are substitutes.
XED=+1.2XED = +1.2XED=+1.2, and the goods are complements.
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.