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Step 1: Understand the concept of cross price elasticity of demand
Cross price elasticity of demand is a measure used in economics to determine the responsiveness of the quantity demanded for a good to a change in the price of another good. It is calculated as the percentage change in the quantity demanded of the first good divided by the percentage change in the price of the second good.
Step 2: Interpret the given cross price elasticity value
A cross price elasticity of 0.8 indicates that if the price of the second good increases by 1%, the quantity demanded of the first good will increase by approximately 0.8%. This positive relationship suggests that the two goods are substitutes for each other. In other words, as the price of the second good becomes more expensive, consumers will tend to buy more of the first good as a substitute.
Final Answer
A cross price elasticity of 0.8 implies that the two goods are substitutes, and an increase in the price of the second good will result in an increase in demand for the first good.
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