Q2) Two goods have a cross-price elasticity of demand of 1.2: i) Would you describe the nature of goods? ii) If the price of one good increase by 5 percent, what will happen to the demand for the other good. Also estimates its value holding other factors constant?

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Q: cross-price elasticity of demand of 1.2

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Elasticity of Demand and Supply

The elasticity of demand and supply are two important concepts of microeconomics. The elasticity of demand measures the responsiveness of consumers’ demands to the price change, changes in income of consumers, and changes in the price of the related goods. Similarly, the elasticity of supply refers to the proportionate change in the quantity supplied due to the proportionate change in the price. In other words, it can be said that elasticity of supply measures how the quantity of supply changes when the price changes of that particular product.