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| MICROECONOMICS
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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 will be the cross price effect to substitute goods?The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases. Alternatively, the cross elasticity of demand for complementary goods is negative.
What do you mean by cross price effect explain the effect on change in price of the complementary goods on the demand of our good with the help of graphs?Cross-price elasticity measures how sensitive the demand of a product is over a shift of a corresponding product price. Often, in the market, some goods can relate to one another. This may mean a product's price increase or decrease can positively or negatively affect the other product's demand.
What is cross price effect with example?It is effect of change in price of one product on quantity demanded of other product. It happens in case of related goods. When price of petrol rises, demand for cars falls. When price of coffee rises, demand for tea rises.
What is cross price effect explain with diagram?What is Cross Price Effect: The effect of change in the price of a related good on the demand for a commodity is called the cross-price effect. These related goods include: Substitute Goods. Complementary Goods.
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