Answer to Question #255976 in Economics for anzel

Question

what is cross elasticity of demand explain its type with figure.

Answer 1

Types of Cross Price Elasticity:

1. Positive Cross Price Elasticity (Substitutes)

Positive Cross Price Elasticity occurs when the formula produces a result greater than 0. That means that when the price of product X increases, the demand for product Y also increases.

2. Negative Cross Price Elasticity (Complementary)

Negative Cross Price Elasticity occurs when the formula produces a result of less than 0. This means that when the price of product X increases, the demand for product Y decreases. In other words, consumers see prices rise for one product and actually buy less of the other product. This is also known as a Complementary Good.

3. Unrelated Cross Price Elasticity

Unrelated Cross Price Elasticity occurs when the formula produces a result of exactly 0. This means that the price of product X can increase by 100 percent, but have no effect on the demand for product Y.