Cross Elasticity of Demand in Monopoly Market

Cross elasticity of demand measures the responsiveness of demand for a particular good to a change in the price of another good. In a monopoly market, where there is only one seller and no close substitutes for the product, the cross elasticity of demand is zero.

Explanation

Monopoly market refers to a market structure where there is only one seller who has complete control over the production and distribution of a particular product or service. In such a market, the seller has the power to set the price of the product and restrict the entry of new competitors. Therefore, there are no close substitutes for the product.

Cross elasticity of demand measures the responsiveness of demand for a particular good to a change in the price of another good. In a monopoly market, the cross elasticity of demand is zero because there are no close substitutes for the product. Consumers have no other options but to buy the product at the price set by the monopolist.

For example, let's say a monopolist produces and sells a particular type of medicine. If the price of another medicine increases, consumers cannot switch to that medicine as there are no close substitutes available. Therefore, the demand for the monopolist's medicine will not change due to the change in price of the other medicine. Hence, the cross elasticity of demand in a monopoly market is zero.

Conclusion

In conclusion, the cross elasticity of demand in a monopoly market is zero because there are no close substitutes for the product. The monopolist has complete control over the production and distribution of the product, and consumers have no other options but to buy the product at the price set by the monopolist.