Managerial Economics - Demand Analysis
Cross Elasticiy - Demand Analysis
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The quantity demanded of a particular commodity varies according to the price of other commodities.
Cross
Elasticiy
The quantity demanded of a particular commodity varies according to the price of other commodities. Cross elasticity measures the responsiveness of the quantity demanded of a commodity due to changes in the price of another commodity. For example the demand for tea increases when the price of coffee goes up. Here the cross elasticity of demand for tea is high. If two goods are substitutes then they will have a positive cross elasticity of demand. In other words if two goods are complementary to each other then negative income elasticity may arise.
The responsiveness of the quantity of one commodity demanded to a change in the price of another good is calculated with the following formula.
The quantity demanded of a particular commodity varies according to the price of other commodities. Cross elasticity measures the responsiveness of the quantity demanded of a commodity due to changes in the price of another commodity. For example the demand for tea increases when the price of coffee goes up. Here the cross elasticity of demand for tea is high. If two goods are substitutes then they will have a positive cross elasticity of demand. In other words if two goods are complementary to each other then negative income elasticity may arise.
The responsiveness of the quantity of one commodity demanded to a change in the price of another good is calculated with the following formula.
If two commodities are unrelated
goods, the increase in the price of one good does not result in any change in
the demand for the other goods. For example the price fall in Tata salt does
not make any change in the demand for Tata Nano.
Tags : Managerial Economics - Demand Analysis
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