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If the goods are perfect substitutes for each other then cross elasticity is
- a)Infinite
- b)One
- c)Zero
- d)None of the above
Correct answer is option 'A'. Can you explain this answer?
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If the goods are perfect substitutes for each other then cross elastic...
Understanding Cross Elasticity of Demand
Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. This concept is crucial in understanding the relationship between products.
Perfect Substitutes
- Perfect substitutes are goods that can replace each other with no loss in utility to the consumer. For example, brand A and brand B of the same product may be considered perfect substitutes.
Implication of Perfect Substitutes
- When goods are perfect substitutes, a price increase in one good will lead consumers to switch entirely to the other good.
- This behavior results in an extreme response in quantity demanded concerning price changes.
Cross Elasticity Calculation
- The formula for cross elasticity of demand is:
Cross Elasticity = % Change in Quantity Demanded of Good X / % Change in Price of Good Y
- For perfect substitutes, if the price of Good Y rises, the quantity demanded for Good X will increase significantly.
Conclusion: Infinite Cross Elasticity
- Since consumers will completely replace one good with another in response to price changes, the cross elasticity becomes infinite.
- Therefore, the correct answer to the question is option 'A': Infinite.
Understanding this concept helps in strategic pricing and competition analysis in markets with perfect substitutes.
Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. This concept is crucial in understanding the relationship between products.
Perfect Substitutes
- Perfect substitutes are goods that can replace each other with no loss in utility to the consumer. For example, brand A and brand B of the same product may be considered perfect substitutes.
Implication of Perfect Substitutes
- When goods are perfect substitutes, a price increase in one good will lead consumers to switch entirely to the other good.
- This behavior results in an extreme response in quantity demanded concerning price changes.
Cross Elasticity Calculation
- The formula for cross elasticity of demand is:
Cross Elasticity = % Change in Quantity Demanded of Good X / % Change in Price of Good Y
- For perfect substitutes, if the price of Good Y rises, the quantity demanded for Good X will increase significantly.
Conclusion: Infinite Cross Elasticity
- Since consumers will completely replace one good with another in response to price changes, the cross elasticity becomes infinite.
- Therefore, the correct answer to the question is option 'A': Infinite.
Understanding this concept helps in strategic pricing and competition analysis in markets with perfect substitutes.
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If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer?
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If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer?.
If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If the goods are perfect substitutes for each other then cross elasticity isa)Infiniteb)Onec)Zerod)None of the aboveCorrect answer is option 'A'. Can you explain this answer?.
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