1.2.3 Cross Price Elasticity

Question 1

What is cross price elasticity of demand (xed) ?

Answer 1

Measures the responsiveness of demand for good X following a change of price of a related good Y

Question 2

What are substitutes?

Answer 2

.Products in competitive demand.
.xed for two subs are positive
.close subs have a strongly pos xed cos if there’s a small change in price can cause a big switch in consumer demand

Question 3

What are compliments?

Answer 3

.Products in joint demand
.If price falls for one compliment then there will be higher demand for its compliment
.Strong compliments = negative xed

Question 4

What is a WEAK compliment?

Answer 4

When two items compliment eachother but have more than one use
Eg) tea and milk - milk can be used for other things