Cross Price Elasticity of Demand

    0
    25

    Goods that are weak substitutes have a positive , a rise in the price of Y causes a less than proportionate rise in demand for X. For example, tea and coffee.

    Complements are goods that are bought (usually) to be used together. Assume goods X and Y are complements. Complements have a negative XED because as the price of Y rises (falls), the demand for X falls (rises), ceteris paribus. For example, tea and milk.

    Goods that are close complements have an | | , a rise in the price of Y causes a more than proportionate fall in demand for X. For example, cars and petrol.

    Goods that are weak complements have an | | , a rise in the price of Y causes a less than proportionate fall in demand for X. For example, tea and sugar.

     

     

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here