CROSS ELASTICITIES OF

DEMANDS OF TWO PRODUCTS

 CONTENT
01 DISCUSS CONCISELY THE CONCEPT OF CROSS ELASTICITIES OF
DEMANDS OF TWO (2) PRODUCTS.

WHAT ARE CROSS ELASTICITIES OF 2 PRODUCTS. WHAT ARE

02 ELASTICITIES OF DEMANDS USED FOR?

WHAT DOES POSITIVE ELASTICITY OF DEMAND MEAN? NEGATIVE

03 ELASTICITY OF DEMAND? ZERO ELASTICITY OF DEMAND?

DIFFERENTIATE SUBSTITUTE, COMPLEMENTARY, AND UNRELATED

04 PRODUCTS IN TERMS OF CROSS ELASTICITIES OF DEMAND.
1. Discuss concisely the concept of
Cross Elasticities of Demands of Two
(2) Products.
Using the provided video material as a guide and with the support
of our team's brainstorming, we have discovered that the cross
elasticities of demand for two products are a measurement of
how the amount desired of one product changes in response to a
change in the price of another. It measures the connection
between changes in the quantities required of two separate
goods, assuming that other variables remain constant while the
price of one of the products changes.
Cross elasticity of demand is calculated using the following
formula:

Cross Elasticity of Demand = (% Change in Quantity Demanded

of Product A) / (% Change in Price of Product B)
 2. What are Cross Elasticities of 2
Products. What are elasticities of demands
used for?
 What are Cross Elasticities of 2 Products?
Cross elasticity of demand measures the responsiveness of one product's
demand to changes in the price of another product. - It quantifies the degree to
which the quantity demanded of one product changes when the price of another
product changes, holding other factors constant.
Positive cross elasticity indicates that the products are substitutes, and an
increase in the price of one product leads to an increase in the quantity
demanded of the other product.
Negative cross elasticity suggests that the products are complements, and an
increase in the price of one product leads to a decrease in the quantity demanded
of the other product.
The magnitude of the cross elasticity indicates the strength of the relationship
between the two products. Cross elasticities provide insights into consumer
preferences, market dynamics, and the impact of price changes on demand.
Businesses use cross elasticities to inform pricing strategies, product positioning,
and competitive analysis.
 What are elasticities of demands used for?
Elasticities of demand inform pricing decisions by estimating the impact of
price changes on quantity demanded.
They help optimize revenue by identifying the price point that maximizes
total revenue based on demand elasticity.
Demand elasticities are used in forecasting models to predict the effects of
changes in variables such as prices, incomes, or market conditions on
demand.
Cross-elasticities of demand aid in market analysis and competition by
identifying substitute or complementary products.
Policymakers use elasticities of demand to assess the potential effects of
taxes or subsidies on consumer behavior, government revenue, and social
welfare.
Elasticities of demand guide product planning and development by
providing insights into consumer preferences and sensitivities.
3. What does Positive Elasticity of Demand
mean? Negative Elasticity of Demand?
Zero Elasticity of Demand?
 POSITIVE ELASTICITY OF DEMAND
Based on what we have learned from the video material, demand is said to be
positively elastic when it responds strongly to changes in price. In other
words, as a product's price rises, the quantity demanded reduces noticeably,
and when the price falls, the quantity demanded rises noticeably. This shows
that consumers are responsive to price fluctuations and modify their
purchase behaviour accordingly. An illustration would be a popular
smartphone model. When its price rises, buyers can decide to put off their
purchase or go with a less expensive substitute. On the other hand, if the cost
of the smartphone drops, more people might be eager to acquire one.
Demand elasticity is generally reported to be positive for luxury or non-
essential goods when consumers have greater discretion over their
purchases.
 NEGATIVE ELASTICITY OF DEMAND
Based on what we have learned from the video material, the quantity of a
product could be more responsive to changes in its price, which is known as
negative elasticity of demand or inelastic demand. Customers in this situation
are not particularly sensitive to price changes, and their demand for the
product remains consistent, mainly regardless of price changes. Think about a
basic essential like bread as an example. Because bread is a necessary good,
customers are likely to keep buying it even if the price goes up. Plus, if bread's
price drops, consumers might not significantly increase their consumption
because there is already a massive demand for bread. Negative elasticity of
demand is typical for goods that are regarded as necessities or have few
alternatives.
 ZERO ELASTICITY OF DEMAND
Based on what we have learned, when the amount sought does not change in
response to price changes, this is referred to as perfectly inelastic demand or
zero elasticity of demand. In this case, consumer demand for the product is
constant regardless of price changes. For instance, consider therapies or
medications for severe illnesses that can save lives. The urgent need for
health and well-being drives demand for these products, and customers are
willing to pay any price to get them. As a result, despite a considerable price
increase for a life-saving drug, people will still buy it since their demand is
unaffected by price changes. For products regarded as necessary,
irreplaceable, or highly specialized in satisfying specialized demands, zero
elasticity of demand is seen.
 4. Differentiate Substitute,
Complementary, and Unrelated Products
in terms of Cross Elasticities of Demand.
In substitute products, the cross-elasticity of demand is a crucial measure to
identify substitute products. The cross-elasticity of demand between
substitute products is positive, indicating that a change in the price of one
substitute product leads to a proportional change in the demand for the
other substitute product. Firms need to be aware of substitute products as
they directly compete with their own products in the market. Price changes or
changes in the attributes of one substitute can significantly impact the
market share and demand for the other substitute.

In Complementary products, the cross-elasticity of demand between

complementary products is negative. This means that a change in the price of
one complementary product leads to an inversely proportional change in the
demand for the other complementary product. Businesses need to consider
the pricing and availability of complementary products when making
decisions about their own products. Changes in the price or availability of
complementary goods can impact the demand for the primary product.
In unrelated products, the cross-elasticity of demand between unrelated
products is close to zero. Changes in the price or availability of one unrelated
product generally do not have a significant impact on the demand for the
other unrelated product. When analyzing markets and making business
decisions, firms typically focus more on factors such as market segmentation,
target customers, and competition specific to their own product category
than unrelated products.
THANK YOU!