Sunday, May 04, 2008

Unit 1: Cross elasicity of demand: The price of oil and the demand for..........camels!

From the blog of the Harvard economist Greg Mankiw, comes this great example of cross elasticity of demand

a) What is the formula for cross ED?
b) In this example, would the figure be positive or negative?
c) What therefore is the relationship between the price of oil and the demand for camels?
d) Would you expect the number to be more or less than one? Explain your answer
e) How do you think the XED number has changed as the price of oil has risen rapidly over the past year?

No comments: