Overview
Cross price elasticity of demand is a vital concept in economics that helps us understand how the demand for one product can be affected by the price change of another product. It is particularly useful for businesses in determining how to price their products and understand market dynamics. By anal...
Key Terms
Example: When the price of apples decreases, the demand for apples increases.
Example: If a 10% increase in price leads to a 20% drop in demand, the elasticity is -2.
Example: Butter and margarine are substitutes.
Example: Peanut butter and jelly are complements.
Example: If the price of coffee rises by 10% and the demand for tea increases by 5%, the cross price elasticity is 0.5.
Example: Companies conduct market analysis to determine pricing strategies.