Answer:
The cross-price elasticity between cereal and milk is -2.
Explanation:
The price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that milk and cereal are complements which means that they are consumed together.
The cross-price elasticity of demand shows the change in quantity demanded of a good because of a change in the price of a related good.
Cross price elasticity
= [tex]\frac{\% \Delta Q}{\% \Delta P}[/tex]
= [tex]\frac{-50}{25}[/tex]
= -2
