The Joy of Economics: Exploring Cross-Price Elasticity

How does the price of pork chops affect the demand for apple sauce?

If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross-price elasticity of apple sauce and pork chops at a pork chop price of $6?

Answer

The cross-price elasticity of the demand of apple sauce and pork chops at a price of $6 is -1.6.

Imagine a world where the price of pork chops suddenly drops from $8 to $6. As a result, the demand for apple sauce sees a significant increase from 100 to 140 jars. This intriguing scenario leads us to explore the concept of cross-price elasticity in economics.

Cross-price elasticity measures how the demand for one product changes in response to a change in the price of another product. In this case, the cross-price elasticity of apple sauce and pork chops at a price of $6 is calculated to be -1.6. This negative value indicates that when the price of pork chops decreases, the demand for apple sauce increases proportionally.

Understanding cross-price elasticity can provide valuable insights into how various products are interrelated in the market. It helps economists and businesses analyze consumer behavior and make informed decisions regarding pricing strategies and product promotions.

So, the next time you see a drop in the price of pork chops leading to a surge in demand for apple sauce, remember the fascinating concept of cross-price elasticity at play!