ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the greater the difference in price between the two goods.
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the greater the income elasticities of demand for the two goods.
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the greater the price elasticities of demand for the two goods.
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the more they are regarded as similar by consumer.
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Detailed explanation-1: -Cross elasticity of demand refers to the way that changes in the price of one good can affect the quantity demanded of another good. This relationship can vary depending on whether the two goods are substitutes, complements, or unrelated to each other.
Detailed explanation-2: -Elastic demand If the absolute value of the cross elasticity of demand is greater than 1, the cross elasticity of demand is elastic, this means that a change in price of good A results in a more than proportionate change in quantity demanded for good B.
Detailed explanation-3: -We determine whether goods are complements or substitutes based on cross price elasticity-if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.
Detailed explanation-4: -Related goods are of two kinds, i.e. substitutes and complementary goods. In case the two goods are not related, the Coefficient of Cross Elasticity is zero.