Cross-price elasticity - Essay Example

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Cross-price elasticity

Similarly if the two goods are complements, we should see a price rise in one good cause the demand for both goods to fall.
-Cross-price elasticity of demand (CPEoD) for car travel with respect to bus fares is very low and is equal to 0.01>0, but 0.010 so there is no relationship between them. It's clear. If the car travel cost grows, the bus fare will grow too. That's why there will not be the greater demand for this kind of transport.
c) How would you interpret the cross-time elasticity of demand for car travel with respect to bus in-vehicle travel, why is it positive, and why is the elasticity higher for peak times compared to off-peak times Does it surprise you that the responsiveness of the demand for car travel is greater with respect to bus in-vehicle time than to bus fares Explain your answer.
The elasticity is higher for peak times compared to off-peak times, because during the peak hours the busses move slower than during off-peak hours and the consumer is keener to switch to a car when the bus is moving slower than when it is moving faster.
d) Are bicycle and bus travel likely to be substitutes or complements What would be the effect on demand for urban bus travel of construction of new bike paths to central city areas What elasticity measures might be relevant when trying to measure the responsiveness of demand for bus travel to changes in these ...Show more


- With respect to bus in-vehicle times: 0.30 (off-peak) and 0.40(peak). This refers to the time spent on the actual bus trip. As it says in the question, "the cross-time elasticities of demand for car travel" That is, the demand for car travel in response to changes in the amount of time spent on the bus trip.
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