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1.2.3 Price, income and cross elasticities of demand

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Question 5

The cross-price elasticity of demand (XED) for commuter rail travel with respect to the price of petrol is estimated to be +1.2.

This implies that:

commuter rail travel and petrol are complementary goods

a 5%5\%5% decrease in the price of petrol will lead to a 6%6\%6% decrease in the demand for commuter rail travel

commuter rail travel is classified as an inferior good because the elasticity is greater than 111

a 10%10\%10% increase in the price of petrol will lead to a 1.2%1.2\%1.2% increase in the demand for commuter rail travel

1.2.3 Price, income and cross elasticities of demand Questions

  1. A Level
  2. /Economics
  3. /1.2.3 Price, income and cross elasticities of demand