Economics Supply And Demand Questions
Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another related good. It shows how the demand for one good is affected by a change in the price of another good. If the cross-price elasticity is positive, it indicates that the two goods are substitutes, meaning that an increase in the price of one good leads to an increase in the demand for the other good. Conversely, if the cross-price elasticity is negative, it suggests that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the demand for the other good. The magnitude of the cross-price elasticity indicates the strength of the relationship between the two goods.