Changes

15.  Suppose french fries cost $1 and ketchup 10 cents.  When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%.  What is the cross elasticity of demand for french fries with respect to ketchup?  Show your work and state whether these goods are complements or substitutes.

15.  Suppose french fries cost $1 and ketchup 10 cents.  When the price of ketchup goes up to 20 cents, the quantity demanded for french fries falls by 10%.  What is the cross elasticity of demand for french fries with respect to ketchup?  Show your work and state whether these goods are complements or substitutes.

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:   Cross-elasticity of demand is how much the demand for one good changes when the price of '''''another''''' good changes.  Here, Xed = -10%/100% = -.1 The two goods are complements because their cross-elasticity of demand is a negative number.