The price of peanut butter increases from $3.00 to $3.50 per jar, and the quantity of jelly demanded falls from 30 jars to 24 jars. Using the midpoint formula, calculate the cross-price elasticity of demand. Report your answer to two decimal places.

the cross price elasticity of demand is -1.44

Explanation:

The computation of the cross price elasticity of demand is shown below:

= Percentage change in quantity demanded ÷ Percentage change in price

where

Percentage change in quantity demanded is

= (Q2 - Q1) ÷ (Q2 + Q1) ÷ 2

= (24 - 30) ÷ (24 + 30) ÷ 2

= -6 ÷ 27

= -0.2222

And, the percentage change in price is

= (P2 - P1) ÷ (P2 + P1) ÷ 2

= ($3.50 - $3) ÷ ($3.50 + $3) ÷ 2

= $0.50 ÷ $3.25

= 0.1538

So, the cross price elasticity of demand is -1.44

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