Cross Elasticity of Demand Calculation

Steps:

• % change in bus journeys = (1000 - 800) / 800 × 100% = 25%
• % change in parking charges = 10%
• Cross elasticity = % change in bus journeys / % change in parking charges = 25% / 10% = +2.5

Why D is correct:

• Cross elasticity formula yields +2.5, positive value shows bus journeys and car parking are substitutes as higher parking costs increase bus demand.

Why the others are wrong:

• A: Negative sign wrong; substitutes yield positive elasticity.
• B: 0.4 reverses formula (10%/25%), incorrect application.
• C: +2.0 understates % change in bus journeys (200/800 = 25%, not 20%).

Final answer: D