Cross-price elasticity of demand

(noun)

Measures the responsiveness of the demand for a good to a change in the price of another good.

Related Terms

Examples of Cross-price elasticity of demand in the following topics:

  • Cross-Price Elasticity of Demand

    • The cross-price elasticity of demand measures the change in demand for one good in response to a change in price of another good.
    • The cross-price elasticity of demand shows the relationship between two goods or services.
    • For independent goods, the cross-price elasticity of demand is zero : the change in the price of one good with not be reflected in the quantity demanded of the other.
    • Two goods that are substitutes have a positive cross elasticity of demand: as the price of good Y rises, the demand for good X rises.
    • Two goods that are independent have a zero cross elasticity of demand: as the price of good Y rises, the demand for good X stays constant.

  • Measuring the Price Elasticity of Demand

    • The price elasticity of demand (PED) is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
    • The price elasticity of demand (PED) captures how price-sensitive consumers are for a given product or service by measuring the responsiveness of quantity demanded to changes in the good's own price.
    • This is in contrast to measuring the responsiveness of the good's demand to a change in price for some other good (a complement or substitute), which is called the cross-price elasticity of demand.
    • The own-price elasticity of demand is often simply called the price elasticity.
    • The following formula is used to calculate the own-price elasticity of demand:

  • Definition of Price Elasticity of Supply

    • In economics, elasticity is a summary measure of how the supply or demand of a particular good is influenced by changes in price.
    • PES = 0: The supply curve is vertical; there is no response of demand to prices.
    • The result of calculating the elasticity of the supply and demand of a product according to price changes illustrates consumer preferences and needs .
    • This graph illustrates how the supply and demand of a product are measured over time to show the price elasticity.
    • Differentiate between the price elasticity of demand for elastic and inelastic goods

  • Interpretations of Price Elasticity of Demand

    • The price elasticity of demand (PED) explains how much changes in price affect changes in quantity demanded.
    • The price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded of a good to a change in its price.
    • Perfectly inelastic demand is graphed as a vertical line and indicates a price elasticity of zero at every point of the curve.
    • The price elasticity of demand for a good has different values at different points on the demand curve.
    • Describe the relationship between price elasticity and the shape of the demand curve.

  • Measuring the Price Elasticity of Supply

    • The price elasticity of supply is the measure of the responsiveness of the quantity supplied of a particular good to a change in price.
    • The price elasticity of supply is directly related to consumer demand.
    • In this case, the price elasticity of supply determines how sensitive the quantity supplied is to the price of the good.
    • The price elasticity of supply is calculated and can be graphed on a demand curve to illustrate the relationship between the supply and price of the good .
    • A demand curve is used to graph the impact that a change in price has on the supply and demand of a good.

  • Calculating Elasticities

    • The basic formula for the price elasticity of demand (percentage change in quantity demanded divided by the percentage change in price) yields an accurate result when the changes in quantity and price are small.
    • This happens because the price elasticity of demand often varies at different points along the demand curve and because the percentage change is not symmetric.
    • Suppose that the price of hot dogs changes from $3 to $1, leading to a change in quantity demanded from 80 to 120.
    • As elasticity is often expressed without the negative sign, it can be said that the demand for hot dogs has an elasticity of 0.4.
    • The point elasticity is the measure of the change in quantity demanded to a tiny change in price.

  • Tax Incidence and Elasticity

    • Tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.
    • The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.
    • A small increase in price leads to a large drop in the quantity demanded .
    • The imposition of the tax causes the market price to increase from P without tax to P with tax and the quantity demanded to fall from Q without tax to Q with tax.
    • In most markets, elasticities of supply and demand are fairly similar in the short-run, as a result the burden of an imposed tax is shared between the two groups albeit in varying proportions .

  • Applications of Elasticities

    • In economics, elasticity refers to how the supply and demand of a product changes in relation to a change in the price.
    • In economics, elasticity refers to the responsiveness of the demand or supply of a product when the price changes.
    • If a change in the price of a product significantly influences the supply and demand, it is considered "elastic."
    • For elastic demand, when the price of a product increases the demand goes down.
    • An elastic demand curve shows that an increase in the supply or demand of a product is significantly impacted by a change in the price .

  • Defining Price Elasticity of Demand

    • The price elasticity of demand (PED) measures the change in demand for a good in response to a change in price.
    • The price elasticity of demand (PED) is a measure that captures the responsiveness of a good's quantity demanded to a change in its price.
    • The law of demand states that there is an inverse relationship between price and demand for a good.
    • When demand is perfectly elastic, buyers will only buy at one price and no other .
    • When the demand for a good is perfectly elastic, any increase in the price will cause the demand to drop to zero.

  • Elasticity of Demand

    • Elasticity of demand is a measure used in economics to show the responsiveness of the quantity demanded of an item to a change in its price.
    • Price elasticity of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.
    • The demand for a good is said to be elastic (or relatively elastic) when its PED is greater than one (in absolute value): that is, changes in price have a relatively large effect on the quantity of a good demanded.
    • A number of factors can thus affect the elasticity of demand for a good:
    • Identify the key factors that determine the elasticity of demand for a good