But the value is less than one, so not a very close complements. -0.8 – Pop corn and cinema tickets are complements.A 10% rise in the price of Sando will lead to higher quantity demand for Hamburger, by extra 12%. +1.2 – Sando and Hamburger are substitutes.The question: What do these numbers mean? Two goods need to be used together to satisfy a want. A rise in the price of another good will lead to a fall in the quantity demanded for this particular good. The greater the value, the closer the substitutes. Substitutes – A good which can be replaced by another to satisfy a want. It means a rise in the price of another good, will lead to an increase in the demand for this particular good. It determines the relationship between the goods complements, substitutes or nothing whatsoever.īody – The values of CED and what it means Introduction: Define CED – measures the degree of responsiveness in quantity demanded of a good due to a change in the price of another good. Discuss which measure is likely to be used more frequently by managers. (b) Explain the practical application of the concepts of price elasticity of demand and income elasticity of demand for automobile firms in your country. (a) The value of cross elasticity of demand for Jollibee’s hamburger with respect to the price of Family Mart’s Sando is +1.2 while the cross elasticity of demand for movie tickets with respect to the price of pop corn is -0.8.Įxplain the significance of the variation in the values of cross elasticity of demand for the two pairs of goods.
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