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If the quantity demanded of product X increases from 8 to 12
units in response to an increase in the price of product Y from Rs.
23 to Rs. 27, the cross elasticity of demand for X with respect to
price of Y is approximately?
units in response to an increase in the price of product Y from Rs.
23 to Rs. 27, the cross elasticity of demand for X with respect to
price of Y is approximately?
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If the quantity demanded of product X increases from 8 to 12 units in ...
Understanding Cross Elasticity of Demand
Cross elasticity of demand measures how the quantity demanded of one good (X) responds to changes in the price of another good (Y). It is calculated using the formula:
Cross Elasticity of Demand = (% Change in Quantity Demanded of X) / (% Change in Price of Y)
1. Calculate the Changes
- Initial Quantity of X: 8 units
- New Quantity of X: 12 units
- Change in Quantity of X: 12 - 8 = 4 units
- Initial Price of Y: Rs. 23
- New Price of Y: Rs. 27
- Change in Price of Y: 27 - 23 = 4 Rs.
2. Calculate Percent Changes
- Percentage Change in Quantity Demanded of X:
(Change in Quantity / Initial Quantity) * 100 = (4 / 8) * 100 = 50%
- Percentage Change in Price of Y:
(Change in Price / Initial Price) * 100 = (4 / 23) * 100 ≈ 17.39%
3. Applying the Cross Elasticity Formula
Now, substitute the percentage changes into the formula:
Cross Elasticity of Demand = 50% / 17.39% ≈ 2.88
4. Interpretation
- A cross elasticity of approximately 2.88 indicates that products X and Y are substitutes.
- This means that as the price of Y increases, the quantity demanded of X increases significantly.
Conclusion
Understanding cross elasticity helps in analyzing consumer behavior and market dynamics, especially in competitive markets.
Cross elasticity of demand measures how the quantity demanded of one good (X) responds to changes in the price of another good (Y). It is calculated using the formula:
Cross Elasticity of Demand = (% Change in Quantity Demanded of X) / (% Change in Price of Y)
1. Calculate the Changes
- Initial Quantity of X: 8 units
- New Quantity of X: 12 units
- Change in Quantity of X: 12 - 8 = 4 units
- Initial Price of Y: Rs. 23
- New Price of Y: Rs. 27
- Change in Price of Y: 27 - 23 = 4 Rs.
2. Calculate Percent Changes
- Percentage Change in Quantity Demanded of X:
(Change in Quantity / Initial Quantity) * 100 = (4 / 8) * 100 = 50%
- Percentage Change in Price of Y:
(Change in Price / Initial Price) * 100 = (4 / 23) * 100 ≈ 17.39%
3. Applying the Cross Elasticity Formula
Now, substitute the percentage changes into the formula:
Cross Elasticity of Demand = 50% / 17.39% ≈ 2.88
4. Interpretation
- A cross elasticity of approximately 2.88 indicates that products X and Y are substitutes.
- This means that as the price of Y increases, the quantity demanded of X increases significantly.
Conclusion
Understanding cross elasticity helps in analyzing consumer behavior and market dynamics, especially in competitive markets.
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If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately?
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If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately?.
If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If the quantity demanded of product X increases from 8 to 12 units in response to an increase in the price of product Y from Rs. 23 to Rs. 27, the cross elasticity of demand for X with respect to price of Y is approximately?.
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