Write an essay on income and cross elasticities of demand

cross elasticity of demand formula

Hybrid car sales go from 60 to 0 at breakneck speed [online]. Every product has a different supply and demand cycle, and this cycle varies throughout time.

distinguish between price elasticity of demand and cross elasticity of demand

However, if the firm also sells a complementary good, such as applications for the smartphones, due to the negative XED for complements, a rise in the price of its smartphones will decrease its revenue from the sale of the applications which may lead to a decrease in its total revenue.

Therefore, they will do so to increase their profits. Although PED may be useful for increasing total revenue, this is not true for increasing profit due to the omission of total cost.

Explain the concept of cross elasticity of demand and income elasticity of demand

When oil prices rise, the cost of production of petrol will rise which will decrease the supply. No part of this publication may be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. The supply of private cars is likely to be price elastic as the production time is likely to be short given that they are mass produced on assembly line which is highly automated. This occurs when a percentage change in price leads to an equal percentage change in quantity demanded. Explain using empirical examples. A fashionable product is a rather broadly defined good. The data that are used to calculate elasticities of demand may be irrelevant or unreliable. For this purpose, I assume that the fashionable product is smartphones. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities. However, if the firm also sells a complementary good, such as applications for the smartphones, due to the negative XED for complements, a rise in the price of its smartphones will decrease its revenue from the sale of the applications which may lead to a decrease in its total revenue. For example, in addition to smartphones, Apple Corporation also sells applications for its smartphones. For example, when StarHub entered the telecommunications market in Singapore in , its initial objective was to induce mobile phone users to switch service providers so that it could capture sufficient market share to compete with SingTel and M1. A normal good with a YED greater than one is known as a luxury and a normal good with a YED less than one is known as a necessity. However, if the firm also sells a complementary good such as applications for the smartphones, XED can also be useful for making proactive business decisions which has been explained earlier.

The example in our book refers to using dollars or pennies, in one instance the dollar amount leads to a demand that is elastic What do you understand by the own-price elasticity of demand for a good? Therefore, the quantity is likely to fall by a larger proportion than the rise in the price.

Therefore, the price is likely to rise by a larger proportion than the fall in the quantity.

income and cross elasticity of demand ppt
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Income elasticity of demand