From WikiEducator Show | MICROECONOMICS
{{{2}}}
Exy == ( ∆Qx/∆py)(Py/Qx)
If Exy is greater than zero, X and Y are substitutes because an increase in Py leads to an increase in Qx as X is substituted for Y in consumption. On the other hand if Exy is less than zero , X and Y are complements because an increase in Py leads to a reduction in Qy and Qx both.
There are certain points to be taken note of with respect to cross elasticity of demand.
a.Classify the commodities in your own consumption basket as normal goods,luxury goods and inferior goods. b.Are the commodities mentioned below normal goods ,luxury goods or inferior goods ? Give reason for your answer. Salt,camera,fruits,milk,Two wheeler,Cigarettes,medicines,Picasso's painting,Laptop.
Colgate sells its standard size toothpaste for Rs.30.Its sales have been on an average 8000 units per month over the past year. Recently its close competitor Binaca reduced the price of the same standard size from Rs.40 to Rs.35.As a result ,Colgate sales declined by 1200 units per month.
What is the crossCross-price elasticity of demand (XED) measures the responsiveness of demand for good X following a change in the price of good Y (where Y is a related good). With cross-price elasticity, we make an important distinction between substitute and complementary goods.
What is the crossCross-Price Elasticity Formula
Py = Average price between the previous price and changed price, calculated as (new pricey + previous pricey) / 2. Δ = The change of price or quantity of product X or Y.
What can be said about goods X and Y if the cross price elasticity between X and Y is positive?We determine whether goods are complements or substitutes based on cross price elasticity - if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.
How do you calculate the crossAlso called cross-price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in the price of the other good.
|