Answer to Question #309733 in Macroeconomics for Jackey

Question

Explain in your own words what you understand by the following types of elasticity. Also write down whether the elasticity coefficient is positive or negative.

a. Cross-price elasticity for a substitute.

Explain in your own words what you understand by the following types of elasticity. Also write down the elasticity coefficient (value) for each type of elasticity.

b. Infinitely elastic or perfectly elastic demand

c. Completely or perfectly inelastic demand.

Answer 1

a. Cross-price elasticity for a substitute.

Cross-price elasticity measures how sensitive the demand of a product is over a shift of a corresponding substitute product price.

Cross-price elasticity has Positive elasticity.

b. Infinitely elastic or perfectly elastic demand

The ultimate situation of infinite elasticity, also known as perfect elasticity, is when either the quantity demanded (Qd) or supplied (Qs) varies by an unlimited number in response to any change in price. The supply and demand curves are horizontal in both circumstances.

The coefficient is positive.

c. Completely or perfectly inelastic demand.

The demand is said to be perfectly inelastic when there is no change in quantity demanded despite a change in the price of the goods. Simply said, it means that there is no change in demand for a price change.

Their coefficient is equal to zero.