Answer to Question #142178 in Economics for O

Question

How the price elasticity demand for a good night be affected by the number and closeness of substitutes

Answer 1

Goods are called fungible (substitutes) if the cross-elasticity of demand is positive. In this case, the increase the price of one product causes a shift to the right of the demand curve for another product (pork - beef, cake - cupcake).

Products are called complementary (complements) if сross-elasticity of demand is negative. In this case, the increase the price of one product causes a shift to the left of the demand curve for another product (car - gasoline, fruit - sugar).

Goods are called non-conjugated (neutral) if the cross the elasticity of demand is zero. In this case, the increase in the price of one product does not affect the demand curve for another product (salt - matches, soap - apples).