The Cross-Price Elasticity of Apple Sauce and Pork Chops

a) What is the cross-price elasticity of apple sauce and pork chops?

[Data: 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]

Final answer:

The cross-price elasticity of apple sauce and pork chops is -1.6.

a) The cross-price elasticity of apple sauce and pork chops can be calculated using the formula: Cross-price elasticity = Percentage change in demand for apple sauce / Percentage change in price of pork chops. In this case, the percentage change in demand for apple sauce is (140-100)/100 = 0.4, and the percentage change in price of pork chops is (6-8)/8 = -0.25. Therefore, the cross-price elasticity is 0.4 / (-0.25) = -1.6.

b) Interpret your answer in part (a).

The negative sign indicates that apple sauce is a substitute for pork chops. A cross-price elasticity of -1.6 suggests that for every 1% decrease in the price of pork chops, the demand for apple sauce increases by 1.6%. This means that pork chops and apple sauce are closely related, and a change in the price of pork chops significantly affects the demand for apple sauce.