Supply and demand of various commodities are not equally sensitive to changes in the factors which determine them.Flexibility in the economy is determined by the degree of sensitivity.There are 2 kinds of this "flexibility": on demand and supply.Today we talk about the first category.But before talking about what cross-elasticity of demand should be considered as such it is based.
elasticity of demand in the price range - is the strength of the reaction of demand to how price changes.It shows just how intense the demand fluctuates with the value of the product unstable.If you look more precisely, it is an indicator of the changes in percentage terms.
options elasticity of demand in the price category:
1) is flexible - if slight price reduction has a positive effect on sales;
2) inelastic - if a significant change in prices is not particularly weighty impact on sales;
3) unit elasticity - if a one percent change in price causes the same change in volume sales.
known that demand affects not only the price but also other factors.For example, the income of consumers.We consider this kind of flexibility.
the income elasticity of demand - is the strength of the reaction of demand for a product, which leads to an increase or decrease in consumer income.It shows the extent to which changes in the demand increase or decrease in income buyers.
Options demand flexibility of income similar to the previous one.
Cross elasticity of demand - is the strength of the reaction of demand for a certain product to changes in the cost of other products.It shows that the percentage change in the demand for one product with an increase or decrease in the price of another.
Cross elasticity of demand can be:
1) positive - when the investigational product used interchangeably (eg, cakes, candy, shampoo and soap, coffee and tea);
2) negative - when the rise in the price of one commodity will have a negative impact on the demand for other items, that is, the investigational product - complementary (eg, gasoline, car, camera and film, tickets and tour packages);
3) zero or close to zero - when the change in the price of one product no (or very little) effect on the demand for other products, have products - neutral or independent (for example, shoes and hats, plates and pans).
factors demand changes.
1) The more limited access to the product, the less elasticity of demand.
2) The more a commodity substitutes, the higher becomes the cross-elasticity of demand.
3) The demand becomes more elastic over time (ie, if the value has changed dramatically for the goods, the demand can also change dramatically, as consumers take time to transform needs).
Depending on the parties involved in the market, it can be divided into two hemispheres.In the consumer market, competing manufacturers who try to best meet the needs of consumers.A market maker is competition for the possession of consumer goods which most suits their needs.
