Last winter, the price of home heating oil increased by 20% and the quantity demanded of home heating oil decreased by 2%. At the same time, with no change in the price of wool sweaters, the quantity demanded of wool sweaters went up by 10%. What is the c

The cross elasticity of demand for wool sweaters with respect to the price of home heating oil is a measure of how much the quantity demanded of wool sweaters changes in response to a change in the price of home heating oil. We know that the price of home heating oil increased by 20% and the quantity demanded of home heating oil decreased by 2%. This indicates that home heating oil is a product with a relatively inelastic demand, since the change in price led to only a small change in quantity demanded. On the other hand, we know that the quantity demanded of wool sweaters increased by 10% with no change in price. This indicates that wool sweaters are a product with a relatively elastic demand, since the change in quantity demanded was relatively large compared to the lack of change in price. Given these observations, we can conclude that the cross elasticity of demand for wool sweaters with respect to the price of home heating oil is likely to be negative, since an increase in the price of home heating oil (an inelastic product) is likely to lead to a decrease in the quantity demanded of wool sweaters (an elastic product). However, without more specific data on the magnitude of the changes in quantity demanded, it is difficult to calculate the exact numerical value of the cross elasticity of demand.