With cross price elastictly we make an important distinction between substitute products and complement goods and Services.
Substitutes: with substitute goods such as brands of cereal or washing powder, an increase in the price of one good will lead to an increase demand for the rival product. Cross price elasticity for two substitutes will be psoitive.
Complements:with goods that are in complementary demand,such as the demand for DVD player and DVD videos,when there is a fall in the price of DVD players we expect to see more DVD players bought,leading to an expansion in market demand for DVD videos.The cross price elasticity of demand for two complements is negative.
The stronger relationship between two prodution the higher is the coefficient of cross-price elasticity of demand.For example with two close substitutes ,the cross-price elasticity will be strongly positive, Likewise when there's a strongcomplementary relatinship between two products ,the cross-price elastictly will be highly negative.Unrelated products have a zero cross elastictly.
Diseconomies of scale
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Diseconomies of scale occur when a business grows so large that the costs
per unit increase. As output rises, it is not inevitable that unit costs
will fa...
7 年前
