What is the cross elasticity of demand and is it worth it to be afraid?

Demand and supply of different goods are not the sameare sensitive to changes in the factors that determine them. The elasticity in the economy is determined by the degree of this sensitivity. There are 2 types of such "flexibility": by demand and by proposal. Today we will talk about the first category. But before we talk about what is the cross elasticity of demand, we should consider its basis as such.

The elasticity of demand in the price category isthe force of the reaction of demand for how the price changes. It shows how much demand varies with the unstable value of the product. If you look more accurately, then this is the change in percentage.

Variants of elasticity of demand in the price category:

1) elastic - if a slight price decrease positively affects the sales volume;

2) is inelastic - if a significant change in price does not have a particularly significant impact on the volume of sales;

3) unit elasticity - if a one percent change in price causes the same change in sales volume.

It is known that demand is influenced not only by price, but also by other factors. For example, the income of consumers. Consider this kind of flexibility.

The elasticity of demand from income is the force of reactiondemand for a product that leads to an increase or decrease in consumer income. It shows how much demand will change with the growth or decrease in the income of buyers.

Variants of income demand flexibility are similar to the previous ones.

Cross-elasticity of demand is strengththe reaction of the demand for some product to a change in the value of another product. It shows how much the demand for one product changes with the growth or decrease in the price of another.

Cross-elasticity of demand can be:

1) positive - when the products tested are interchangeable (for example, cakes and sweets, shampoos and soaps, coffee and tea);

2) negative - when the price growth for one productwill have a negative impact on the demand for another product, that is, the products under investigation are mutually complementary (for example, gasoline and a car, film and camera, tickets and travel packages);

3) zero or close to zero - when the changethe prices of one product in any way (or very slightly) will affect the demand for another product, that is, goods - neutral or independent (for example, shoes and hats, plates and pans).

Factors of demand change.

1) The more limited access to a product, the less elasticity of demand for it.

2) The more substitutes a product has, the higher the cross-elasticity of demand becomes.

3) Demand becomes more elastic with time(that is, if the value for a commodity has changed dramatically, then demand can not change dramatically either, because consumers will need time to convert needs).

Depending on the side of the market,it can be divided into two hemispheres. In the consumer market, manufacturers compete, which try best to meet the needs of consumers. And in the producer's market there is a competition of consumers for possession of the goods, which most satisfies their needs.