Always round tire finds the following cross elasticities:
A. Demand for tires / price of batteries = .45
B. Demand for tires / price of brake jobs = -0.70
C. Demand for tires / pric of an oil change = 0.002
Discuss implications for pricing of batteries, brakes and oil changes on the sale of tires.
Any help in understanding this question would be greatly appreciated.
The response addresses the queries posted in 529 words with references.
// Since, this paper deals with calculations of 'Cross Elasticity', it is very important to understand the concepts involved in the case. Here, various cross elasticities of different products have been discussed. On the basis of these given values, we would discuss the implications for pricing of batteries, brakes and oil changes on the sale of tires.//
Cross Elasticity of Demand
Cross Elasticity of Demand refers to the proportional change in the quantity demanded of a commodity divided by proportional change in the price of its substitute or complementary goods (Mathur, N.D., 2001). In case of complementary good, the cross elasticity of demand will be negative as there is inverse relationship between the demand of a commodity and prices of its complementary goods. On ...
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