In economics the theory of cross elasticity of demand plays a very important part in economics.
The cross elasticity of demand shows to us the responsiveness of the demand of a good to change in the price of another good.
So, on this diagram we can see that both the price elasticity of demand for beer and the cross price elasticity of wine with the price of beer depend on the shape of price-consumption curve.
The price elasticity of demand for beer is the percentage reduction in the quantity of beer demanded. The cross price elasticity for the quantity of wine with respect to the price of beer is the percentage change in the quantity of wine demanded in response to a percent increase in the price of beer. When the price of beer falls,people buy more wine at the same constant price,so people should spend more on wine,because their budget didn't change and they spend more on wine,people must spend less on beer.
No comments:
Post a Comment