Explain the Concept of Cross Elasticity of Demand?
Here we understand the concept of cross elasticity of demand and its importance in detailed.
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Explain the Concept of Cross Elasticity of Demand?
First of all, we understand the meaning of Cross Elasticity of Demand.
Cross Elasticity of Demand:
The concept of cross elasticity of demand explains relative change between the price of one commodity and the demand for another commodity. Means, demand for a commodity is influenced not only by its own price but by the prices of the related goods also. Thus, demand for tea depends on the price of coffee also.
"The cross elasticity of demand expresses a relationship between the change in the demand for a given commodity in response to the change in the price of some other commodity."
Now, we will discuss about the Importance of the Concept of Cross Elasticity of Demand.
- The concept of cross elasticity of demand is of great importance in changing the price of the products having substitutes and complementary goods.
- It is also useful in measuring the interdependence of demand for a product and the prices of its related products. Its knowledge helps the firm to estimate the effect on its sales and pricing decisions of its competitors.
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Cross Elasticity of Demand.
Kinnari
Tech writer at NewsandStory