Answer to Question #283225 in Economics for mark

Question

Cross-price elasticity between UAV cameras and drones is negative 2.5 when the price of drones drops. Explain what this means in terms of the relationship between the two products. The forecast is that the price of drones will keep dropping - what advice would you have for the UAV camera maker? Why?

Answer 1

Since the cross-price elasticity of demand between UAV cameras and drones is -2.5 it means that the UAV cameras and drones are complementary products. Therefore, if the price of drones will keep dropping the demand for the UAV cameras will increase, because the consumption of drones will increase. Thus, I will advice for the UAV camera maker to produce more UAV cameras to satisfy its demand for drones.