馃攳
Cross-Price Elasticity of Demand - Meaning, Formula, Examples, How to Calculate? - YouTube
Channel: WallStreetMojo
[9]
hello everyone and welcome to wall
streetmojo to know more about this
[14]
video cross-price elasticity of demand
watched a video to the end and also if
[18]
you're new to this channel then you can
subscribe us by clicking the bell icon and
[21]
that's given below welcome everyone in
in today's topic we would try and
[24]
understand this economic space topic
which is a micro economics basics let's
[30]
try and understand this in a detailed
format and the very the very initial
[34]
let's try and understand cross price
elasticity of demand see cross price
[38]
elasticity of demand it basically
measures the relationship between the
[42]
price and the demand that is a change in
the quantity demanded by one product
[48]
with a change in the price of these
second product where if both products
[51]
are let's say substitutes then it will
show all positive cross elasticity of
[59]
demand and if both of them are
complimentary both of them are
[66]
complementary goods it would show an
indirect indirect or negative
[77]
cross elasticity of demand so in simple
terms it measures the sensitivity of
[83]
demand for one quantity X and when the
price of the goods of Y is change so how
[98]
exactly the formula works well it is
calculated by dividing the percentage
[102]
change in the quantity of the good x by
the percentage change in the price of
[107]
goods Y which is represented
mathematically as the cross price
[113]
elasticity of demand is equal to change
in quantity of X divided by change
[124]
divided by quantity of X this thing
whole divided by change in price of Y
[133]
divided by price of Y so further this
formula can be in something like this
[141]
the gross price elasticity of demand is
equal to your quantity 1 X minus
[149]
quantity of 0 X this whole thing is
divided by quantity of 1 X plus quantity
[164]
of 0 X this whole thing is again divided
by price of 1 by minus price of 0 Y
[176]
close the bracket and this whole thing
is divided by again price of 1 y plus
[183]
price of 0 Y so q0 x is the initial
demand this is what I'm talking about q0
[193]
x q1 x which is the final demanded
quantity of good X and then is the
[206]
initial price of good-y
[211]
which is your p0 wife and then there is
again p1 y which is the final price of
[221]
good-y let's understand this with the
help of the step by step calculation of
[233]
the cross price elasticity of demand
step 1
[242]
firstly you need to identify if the most
important is the p0 y the price of
[249]
initial y or y and q0 x which is the
price with the initial price of the good
[257]
y and initially demanded quantity of the
good x represented step 2
[262]
now if you determine the final demanded
quantity of the good x okay and the
[270]
final price of good-y
which are termed as q1x
[277]
and b1y respectively then there is step
3
[288]
walk out on the numerator of the formula
which represents the percentage change
[295]
in the quantity and it is around by
dividing the difference of the
[299]
difference between the final and the
initial quantities okay that is Q 1 X
[309]
minus Q 0 X by summation of differend
final and the initial quantities step 4
[316]
now work out the denominator of the
formula which represents the percentage
[321]
change in price and it is arrived at by
dividing the difference between the
[327]
final and the initial price that is P 1
y minus V 0 y by summation of the final
[335]
and the initial price and then finally
the step number 5 which is finally the
[341]
cross price elasticity of demand is
calculated by dividing the expression
[344]
the step 3 by expression 2 step 4
well for the same we will take an
[349]
example let's assume an example on this
let's take a simple example of gasoline
[355]
passenger vehicle and assume
that the search in the price is by 50%
[359]
the search in the 50% of the gas in price
has resulted in the decline in the
[363]
purchase of the passenger vehicles by
let's say 10% now what we need to
[369]
calculate is the cross price elasticity
of demand in this case so using the
[375]
above and should formula or the cross
price elasticity of demand can be
[378]
calculated as the percentage change
then the number of the period passenger
[390]
vehicles divided by the percentage
change the price of gasoline so how
[401]
exactly it is calculated the percentage
change in quantity of passenger vehicle
[418]
is minus 10% then there is a
percentage change in the price of
[427]
gasoline that is 50% and the
cross price elasticity of demand is
[441]
minus 2 that is 10 divided by 50
that's 20% that's minus 20 so
[449]
minus 20% so it's in since we can
see a negative value for the cross
[453]
elasticity of demand it indicates the
complementary relationship between
[457]
gasoline and passenger vehicles so let
me understand make you understand the
[461]
relevance and use of the use of this
particular formula so it is paramount
[466]
importance for a business to understand
the concept and relevance of the cross
[470]
price elasticity of demand to understand
the relationship between the price the
[476]
price of the goods okay and the quantity
that has been demanded to understand the
[485]
relationship between the price of the
goods and the quantity demanded of on
[487]
other goods at that price so it can be
used to decide the pricing policy for
[493]
different markets for various products
or services so the cross price
[496]
elasticity behaves differently based on
the type of the relationship between the
[500]
goods
okay the first one is called the
[504]
substitutes products so in case both the
goods which are perfect substitutes to
[518]
each other resulting in the perfect
competition then an increase in the
[521]
price of the one good will lead to an
increase in the demand for the travel
[525]
product for example various brands with
the serials are the examples of
[529]
substitute Goods it is to be noted that
the cross price elasticity for to
[533]
substitute will be always be positive
second then there is called as the
[541]
complementary products now if in case
the goods are complementary to each
[547]
other then the decrease in the price
that is in the price of the one good
[553]
good good will good leads to an increase
in the demand for the complementary
[557]
Goods so the stronger the relationship
between the two products the higher will
[562]
be the co-efficient right so that is the
whole idea behind this of the cross
[573]
price elasticity of demand for example
the game consoles and the software games
[577]
are examples of the complementary goods
it is to be noted you know basically
[580]
that the cross price elasticity will be
negative for the complementary Goods
[584]
third is unrelated products
[600]
if in case in case of the unrelated
products if in case there is no
[605]
relationship between the goods then an
increase in the price of one good will
[609]
not affect the demand for the other
product so assets the unrelated products
[613]
have a zero cross elasticity for example
the effect of the change in the taxi
[617]
fares on the market demand for a milk
right so when that's it for this
[622]
particular topic if you have learned and
enjoyed watching this video you can
[624]
subscribe us.you please like comment and
subscribe the channel for all the latest
[629]
updates
thank you everyone for joining the video
Most Recent Videos:
You can go back to the homepage right here: Homepage