The elasticity which shows the responsiveness of the demand for a good due to changes in...

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

Expert Solution

Cross elasticity of demand is the elasticity which shows the responsiveness of the demand for a good due to change in the price of a related good .it can be calculated as % change in quantity demanded/ % change in price.

cross price elasticity of demand define whether two goods are substitutes,compliment or unrelated .

1- substitue good- are those goods in which as there is increase in price of one good causes increase in the demand for other good.the cross price elasticity is positive in case of substitute goods eg coke and pepsi.

2- complementary goods- are those goods in which an increase in the price of one good will lead to decrease in demand for other.the cross price elasticity is negative in complimentary goods eg cereal and milk.

3- unrelated goods - are those goods that are unrelated ie no connection or no effect which means the change in price of a product has no effect on demand of another product.the cross elasticity is zero in case of unrelated goods eg coke and skirt

Rahul Sunny answered 2 years ago

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