Now cross elasticity of demand is the change in demand of one good with change in price of another. Now you will be wondering how can demand of one good affect the price of another .
So now let's take a real life example suppose the price of petrol increases so now what happens is if you are planning to purchase a car automatically we would go for the diesel car instead of the petrol car this is because the price of petrol rose .Now here the price of car did not change for its sales to come down but the demand for the petrol cars was actually affected by the increase in price of the petrol . Now take up a situation , suppose a person who drinks coffee often , suddenly price of coffee increase drastically and now this has forced the user to switch over to tea . The demand for tea here rose not because its price was lowered instead it changed due to the change in price of coffee. Now this is what is learnt by cross elasticity.
Saturday, July 28, 2018
Cross Elasticity
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