6 terms

cross price elasticity

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cross price elasticity defined
the responsiveness of the quantity demanded for good x to a change in price of good y (substitutes and complements)
cross price elasticity (supply)
substitute
cross price elasticity (demand)
complementary
e is negative
goods are complements
e is positive
goods are substitutes
why would firms find cross price elasticity important?
helps them decide what to do with the price of their own good to maximize total revenue (decrease price, increases revenue if it is a substitute)
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