Question

a 2 percent increase in the price of milk causes a 4 percent reduction in the quantity demanded of chocolate syrup. what is the cross - price elasticity of demand for chocolate syrup with respect to the price of milk? instructions: enter your response as a whole number. if you are entering a negative number, be sure to include a negative sign (-). cross - price elasticity of demand: blank the two goods are (click to select) because when the cross - price elasticity of demand is negative, the goods are substitutes. positive, the goods are complements. negative, the goods are complements. zero, the goods are substitutes.

Explanation:

Step1: Recall cross - price elasticity formula

The formula for cross - price elasticity of demand ($E_{xy}$) is $E_{xy}=\frac{\%\text{ change in quantity demanded of good }x}{\%\text{ change in price of good }y}$.

Step2: Identify the values

The $\%$ change in the price of milk (good $y$) is $2\%$ (or $0.02$) and the $\%$ change in the quantity demanded of chocolate syrup (good $x$) is $- 4\%$ (or $-0.04$).

Step3: Calculate cross - price elasticity

$E_{xy}=\frac{-4\%}{2\%}=- 2$.

Step4: Determine the relationship between goods

If cross - price elasticity of demand is negative, the two goods are complements. When the price of milk goes up, the quantity demanded of chocolate syrup goes down, indicating they are consumed together.

Answer:

Cross - price elasticity of demand: $-2$
The two goods are complements because when the cross - price elasticity of demand is negative, the goods are complements.