The concept of cross elasticity of demand becomes useful in taking decision regarding the price of a commodity and its production. The stronger the relationship between two products, the higher is the co-efficient of cross-price elasticity of demand When there is a strong complementary relationship, the cross elasticity will be highly negative. A high positive cross-price elasticity indicates that if the price of a certain good goes up, the demand for the other good goes up as well. Cross Price Elasticity of Demand (XED) and its Determinants by Jason Welker This lesson introduces the concept of cross price elasticity of demand, or the responsiveness of consumers of one good to a change in the price of a related good. The important determinants of demand of commodity are the income of consumer, sales cost and prices of related goods etc. Cross price elasticity of demand and its determinants Cross price elasticity of demand: measures the responsiveness of a demand for one good to a change in price of another good. The cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes. One of the determinants of demand for a good is the price of its related goods.
Determinants of Elasticity of Demand Definition: The Elasticity of Demand is a measure of sensitiveness of demand to the change in the price of the commodity. The major determinant of cross-elasticity of demand is the closeness of the substitute or complement. An example might be games consoles and software games Cross elasticity of demand is the ratio of percentage change in quantity demanded of a product to percentage change in price of a related product. Movement along the curve for one good causing a shift in demand for another good Determinants of Elasticity of Demand Apart from the price, there are several other factors that influence the elasticity of demand.
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