GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Cross elasticity of demand between two perfect substitutes will be
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zero
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low
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high
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infinity
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Explanation:
Detailed explanation-1: -In the case of perfect substitutes, the cross elasticity of demand is equal to positive infinity (at the point when both goods can be consumed).
Detailed explanation-2: -Infinite elasticity or perfect elasticity refers to the extreme case where either the quantity demanded (Qd) or supplied (Qs) changes by an infinite amount in response to any change in price at all.
Detailed explanation-3: -Unrelated goods: Unrelated or independent are terms that refer to a scenario in which two goods have a cross-price elasticity coefficient of zero. This means that analysis shows no relationship in consumption or demand trends. As such, a price change for one product is not likely to affect the demand of the other.
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