Question : Assertion: Cross elasticity of demand measures the responsiveness of quantity demanded of one good to changes in the price of another good.
Reason: Cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
Option 1: Both the assertion and reason are correct and related.
Option 2: Both the assertion and reason are correct but not related.
Option 3: The assertion is correct, but the reason is incorrect.
Option 4: The assertion is incorrect, but the reason is correct.
Correct Answer: Both the assertion and reason are correct and related.
Solution : The correct answer is (A) Both the assertion and reason are correct and related.
The assertion states that cross elasticity of demand measures the responsiveness of quantity demanded of one good to changes in the price of another good. This is correct because cross elasticity of demand measures how the quantity demanded of one good changes in response to changes in the price of another related good. It captures the relationship between two goods in terms of their demand.
The reason states that cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. This is also correct because the formula for cross elasticity of demand is indeed the percentage change in quantity demanded of one good divided by the percentage change in the price of another good. It quantifies the degree of responsiveness between the two goods.
Therefore, both the assertion and reason are correct, and they are related as the reason explains the concept mentioned in the assertion.
