Answer:
Decrease by 50 percent.
Explanation:
Given that,
Cross-price elasticity of demand between peanut butter and jelly = -2.50
This means that peanut butter and jelly are complimentary goods.
Increase in the price of peanut butter = 20 percent
Therefore,
Cross-price elasticity of demand = Percentage change in the quantity demanded of Jelly ÷ Percentage change in the price of peanut butter
-2.50 = Percentage change in the quantity demanded of Jelly ÷ 20
-2.50 × 20 = Percentage change in the quantity demanded of Jelly
- 50% = Percentage change in the quantity demanded of Jelly
This indicates that a 20% increase in the price of peanut butter will lead to reduce the quantity demanded of Jelly by 50%.
