Question

The own-price elasticity is related to changes in quantity demanded. Cross-price elasticities are related to changes in demand. Explain this statement

Answer 1

True.

For this first we need to understand the difference between quantity demanded and demand,

Quantity demanded occurs when the only factor present is price

But if more than other factor are present like presence of substitutes, income level of the consumers, expectation of the consumer then there will be change in the demand

The change in demand is shown by the shift of the demand curve

But the change in quantity demanded is shown by the movement of the demand curve

So here in the given question Since own price elasticity of demand is the ratio of percentage change in the quantity demanded to the percentage change in the price

The only factor present is price

But if we talk about the cross price elasticity of demand then it is between the two type of goods and we have to find out that whether the two goods are substitutes are complements

Here we can clearly see that the only one factor that is price is not present but the substitute or complement factor is there

Hence there will be change in demand not quantity demanded