economics
- Created by: katier1234
- Created on: 14-11-19 08:20
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- Cross Price Elasticity of Demand
- This is to the extent to which changes in the price of one good, affect the demand for another good
- Calculation
- % change in the quantity demanded of good A / % change in price of good B
- If a number is above 1 demand would be relatively price elastic- demand responds to changes in the price of other goods by a greater proportion than the change in price
- A positive answer = competing goods( or substitute goods)
- This is competitive demand
- The higher the cross price elasticity, the closer they are as substitutes
- This is competitive demand
- A positive answer = competing goods( or substitute goods)
- If the answer is between 0 & 1 demand is relatively cross price inelastic- demand is relatively unresponsive
- A negative answer = complementary(consumed together)
- This is joint demand
- Close complementary goods will tend to be more cross price elastic
- This is joint demand
- A negative answer = complementary(consumed together)
- The stonger the relationship between two products, the higher the coefficient of cross price elasticity of demand
- For example with two close substitutes, the elasticity will be strongly positive
- When their is a strong complementary relationship between two products , the cross price elasticity will be highly negative
- Unrelated goods have a zero cross price elasticity
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