Cross-price elasticity measures how sensitive the quantity demanded for one product is to changes in the price of another related product. It helps determine if two goods are substitutes or complements.
Imagine cross-price elasticity as two gears that interact with each other. If an increase in price for one gear leads to an increase in demand for another gear, they are complementary goods, like gears working together smoothly. If an increase in price for one gear leads to a decrease in demand for another gear, they are substitute goods, like gears that don't fit well together.
Income Elasticity: Income elasticity measures the responsiveness of demand for a good or service to changes in income. It indicates whether a good is normal (positive income elasticity) or inferior (negative income elasticity).
Substitutes: Substitute goods are products that can be used in place of each other. When the price of one substitute increases, the demand for the other substitute increases.
Complements: Complementary goods are products that are typically consumed together. When the price of one complement increases, the demand for the other complement decreases.
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