Question

3.) In no more than five (5) lines of typed text below this question define the term cross-price elasticity of demand and be sure to include: a) product examples and b) numerical analysis in your answer.

4) In no more than five (5) lines of typed text below this question define the term price elasticity of supply and be sure to include a numerical analysis in your answer. Provide examples as well.

Answer 1

3- cross price elasticity of demand basically shows the responsiveness of change in price of one good on its related good, related good cn be substitute or the complementary good,

in case goods are substitutes like pen pencil , the cross price elasticity is positive,

in case goods are complements which are used together like shoes and socks, the cross price elasticity is negative.

take two goods like tea and coffee which are perfect substitutes,

in this case

lets assume the price of tea increased from 1 to 2 thus demand for coffee being the substitute increase from 10 to 20

so cross price elasticity is given by

20-10/10 / 2-1/1 = 1