Analyzing cross price elasticity of demand
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Two goods have a cross price elasticity of +1.2.
a. Would you describe these goods as substitutes or complements?
b. If the price of one of the goods increases by 5 percent, what will happen to the demand for the other product, holding constant the effects of all other factors?
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Solution Summary
Solution predicts about the nature of given goods and changes in demand of a good based upon given value of cross price elasticity of demand.
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a. Would you describe these goods as substitutes or complements?
Here cross price elasticity is a positive value. It indicates that an increase in price of related will increase the demand of other good ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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