The major determinant of cross elasticity of demand is the

Assessment: JAMB UTME - Economics - 2007 Subject: Economics

Question 1 Report

The major determinant of cross elasticity of demand is the
Answer Details
The major determinant of cross elasticity of demand is the "closeness of the substitutes." Cross elasticity of demand is a measure of how the quantity demanded of a particular good changes in response to a change in the price of a related good. If there are close substitutes available, then the cross elasticity of demand will be high, indicating that consumers are likely to switch to the substitute good if the price of the original good increases. On the other hand, if there are no close substitutes, then the cross elasticity of demand will be low, indicating that consumers have few alternatives and are likely to continue buying the original good even if the price increases.

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