ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

The percentage change in demand for good X if there is a price change for good Y. If the number is negative if they are compliments; positive if they are substitutes. What is this called?

A	Cross-Price Elasticity
B	Law of Complimentary goods
C	Law of Substitution
D	Consumer Surplus

Explanation:

Detailed explanation-1: -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.

Detailed explanation-2: -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-3: -Answer and Explanation: The correct option is (b) Greater their substitutability. A positive cross price elasticity between two goods implies that an increase in price of one good leads to an increase in the demand for the other good. A higher cross price elasticity implies a higher substitutability.

Detailed explanation-4: -If the percentage change in quantity demanded is greater than the percentage change in price, demand is said to be price elastic, or very responsive to price changes.

There is 1 question to complete.