Supply and demand - Essay Example

Summary

Cross-price elasticity of demand refers to the degree of responsiveness of quantity demanded of a given product to changes in the price of a closely related product. It thus measures the substitutability and complementarities between different products. It is calculated as…

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Subject: Finance & Accounting
Type: Essay
Level: Ph.D.
Pages: 4 (1000 words)
Downloads: 2
Author: qsimonis

Extract of sample "Supply and demand"

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Two goods are said to be complements if they are consumed jointly to satisfy a particular need of the consumer. A rise in price of one good leads to a fall in demand of the other good. Complements have a negative cross-price elasticity of demand and the higher the negative value, the higher the degree of complementarity between the two commodities. The value for income elasticity of normal goods is positive, because of the direct relationship between income and quantity demanded. If the income elasticity is a negative value, the commodity is an inferior good.

Normal goods consist of necessities and luxuries. The income elasticity for necessities is positive, but in the range between zero and one, (0

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