Does cross-price elasticity of demand between Commodity A and Commodity B have to be the same as cross-price elasticity of demand between Commodity B and Commodity A? Why or why not? Explain briefly. what does is it mean for cross price elasticity to be inelastic?
- Does cross-
price elasticity of demand between Commodity A and Commodity B have to be the same as cross-price elasticity of demand between Commodity B and Commodity A? Why or why not? Explain briefly. - what does is it mean for cross price elasticity to be inelastic?
The percentage change in the quantity demanded of one good as a result of the price change of an other, or related good is known as cross price elasticity of demand. If all prices are allowed to vary, the quantity of good X that is demanded depends not just on that goods price, but also on the prices of other goods.
Whether or not goods are substitutes or complements is determined by the concept of cross price elasticity of demand. Goods that are likely to compete with one another are classified together using this term in market definition. Good X and Y are seen as substitutes if a rise in the price of good Y causes an increase in the quantity demanded of good X while the price of X is remained constant. for eg. Tea and coffee. When Exy > 0, Price of Y and Qd of X are closely related. X and Y are substitutes.
Products X and Y are regarded as complements if a rise in the price of Y causes a decrease in the quantity demanded of product X while keeping the price of X constant. for eg. Car and Petrol. When Exy < 0, Qd of X and Price of Y are inversely related. X and Y are complements.
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