Saturday, July 28, 2018

Cross price elasticity of demand

Cross price elasticity of demand
Defination:The measure of responsiveness of the demand for a good towards the change in price of related good is called cross price elasticity of demand(Cped)
Cross price elasticity is measured in percentage terms.It is related on consumption behaviour
There are two kinds of related goods like

  1. Complementary 
  2. Substitutes
If the goods are not related their cofficient is ZERO
        CPED is generally calculated on %change in quantity by %change in price
  • The cross price elasticity of demand is negative for complementary goods
Eg:when the price of coffee increases the quantity demand for tea decreases 
  • The cross price elasticity of demand is positive for substitute goods
Eg:when price of coffee increases the quantity demand for tea also increases 







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