Cross Elasticity Assignment Help
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Purpose of Cross Elasticity Assignment
The cross elasticity of demand is recognized as an economic concept which puts stress on the idea that some goods are related, no matter whether they are alternatives or complementary. Based on this theory, the demand for good A would depend on the costs of its related goods keeping other things constant. If there is a change in the cost of linked goods then it would make a change in the demand for good A too. So accordingly, it can be said that cross elasticity measures the amounts of change in demand for commodities.
This theory can be made clear with the example of tea plus coffee. An individual who requires any type of hot drink does either take tea or coffee. If, by chance, the cost of coffee rises then many people will begin to consume less coffee and to meet their demand for a hot drink will opt for tea instead. So it becomes clear that the demand for tea rises not because its price has come down but as the cost of its close substitute, which is, coffee went up. Hence, few goods are complementary as they can be taken together. When the cost of bread rises, its demand falls. Accordingly, when the bread will be less demanded, people will purchase less butter as people will shift their attention to some other type of breakfast. This way, the hike in the cost of bread will affect the demand for butter.
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