ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND

 Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The cross-elasticity of demand for good X with respect to good Y is-0.5.What can be concluded from this?
 A Goods X and Y are complementary goods. B Goods X and Y are substitute goods. C Good X is an inferior good. D Good Y is an inferior good.
Explanation:

Detailed explanation-1: -Therefore, if a 30% increase in the price causes a 15% decrease in the quantity demanded, then this would give a price elasticity of demand equal to 0.5 in absolute terms.

Detailed explanation-2: -The cross‐price elasticity of demand is given by the formula: If the percentage change in the quantity demanded of good X is greater than the percentage change in the price of good Y, the demand for good X is cross‐price elastic with respect to good Y, or very responsive to changes in the price of good Y.

Detailed explanation-3: -Definition: Cross elasticity (Exy) tells us the relationship between two products. it measures the sensitivity of quantity demand change of product X to a change in the price of product Y. Price elasticity formula: Exy = percentage change in Quantity demanded of X / percentage change in Price of Y..

Detailed explanation-4: -Answer and Explanation: A cross-price elasticity greater than zero implies a positive cross-price elasticity. For substitute goods, the cross-price elasticity of demand is always positive. This implies that as the price of one good increases, the demand for the other good, which is a substitute, increases.

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