Answer:
To calculate the cross elasticity of demand for ice cream when the price of chips decreased from £0.90 to £0.70, we need to use the formula for cross elasticity of demand.
The formula for cross elasticity of demand is:
Cross Elasticity of Demand = ((% Change in Quantity Demanded of Ice Cream) / (% Change in Price of Chips))
First, calculate the % change in quantity demanded of ice cream:
- Initial quantity of ice creams sold = 96 '000
- Final quantity of ice creams sold = 223 '000
% Change in Quantity Demanded of Ice Cream = ((Final Quantity - Initial Quantity) / Initial Quantity) * 100
Next, calculate the % change in the price of chips:
- Initial price of chips = £0.90
- Final price of chips = £0.70
% Change in Price of Chips = ((Final Price - Initial Price) / Initial Price) * 100
Finally, substitute these values into the formula and calculate the cross elasticity of demand for ice cream.