cross elasticity

Topics: Supply and demand, The Independent, Price point Pages: 2 (495 words) Published: December 4, 2013

In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to a percentage change in price of the second good.

cross elasticity for substitute products
The change in the demand for a product due to the change in the price of the substitute product gives a positive value of the.

Here we can see that the as price of product A goes up the demand for product B also increases. The change in the price is positive and so is change in demand so the value of will be positive. Applications could include

There might be an increase in demand for Pepsi due to increase in price of coke. visa versa When the substitute product come at a lower price then we can make use of it as a strategy i.e. Maggi noodle has monopolist grip over the market for long time but when Yippee came out with the noodle which had less price it definitely gave Maggi a run for its money. As the airfare in AirIndia increases demand for AirAsia increases as have low air fare rates. The introduction of KFC lead to the decrease in the demand for CHICKING. Increase in the price of plastic will increase demand for the coir rope since plastic rope will also become expensive.

cross elasticity of compliment products
The change in the demand for one product when the price of the complement product changes gives a negative.

We can see that as the demand for B increases as the price for product A increases. Change in price is negative thereby making the cross elasticity to be negative. Let us look into the examples. Decrease in the price of the bread will lead to increase in the demand of jam. Increase in the price of diesel directly affects the increase in demand price of the commodities (vegetable). During the rainy season, as rain increase the demand for umbrella...
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