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Economics Essays

First, it is important to understand the difference between own price elasticity and cross-price elasticity.Own price elasticity concerns about the responsiveness of the the quantity demanded of good X to a change in its own price; while cross-price elasticity concerns with the responsiveness of demand of good X to a change in price of good Y.So the size of cross-price elasticity, i.e. the sign and the absolute value will depend on the relationship between good x and good y.If X and Y are complements, then cross-price elasticity is negativeWhen X and Y are substitutes, then cross-price elasticity is positiveIf X and Y are unrelated, cross-price elasticity is zero.The absolute value will depend on how closely the two goods are related, ie the stronger the correlation, the larger the absolute value