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AS Economics
Coca Cola Camembert Cheese Euro Star Journey from London to Paris Dowe Egberts Filter Coffee Ticket to a film at the UGC Cinema in Slough
Complementary Goods
Product Close Complement Weak Complement Good with no relationship
Personal Computer
The Diagrams!
Substitutes
Price of Two Weak Substitutes Good S Demand
+
Goods S and T are weak substitutes A rise in the price of Good S leads to a small rise in the demand for good T The cross price elasticity of demand will be positive but the coefficient of elasticity will be less than one
P2
P1
Quantity demanded of
Good T
Complements
Price of Goods X and Y are close complements A fall in the price of good X leads to a large rise in the demand for good Y The cross price elasticity of demand will be negative and the coefficient of elasticity will be more than one Complements are said to be in JOINT DEMAND Good X Deman d P1 P2
Demand
Good A Goods A and B have no relationship. A fall in the price of good A leads to no change in the demand for good B Therefore the cross-price elasticity of demand is zero
P1
P2
P3
Calculate the CPeD and state whether the goods are complements or substitutes?
1. A 10% rise in the price of fish may cause demand for chicken to increase by 2%. 2. The fall in the price of paper by 20% causes the demand for pens to increase by 5%. 3. A 20% rise in the price of ice cream causes demand for sweets to increase by 4%. 4. A 12% fall in the price of air fares leads to a 30% rise in the demand for foreign holidays. 5. A 10% rise in bikes will leave the demand for cheese unaffected.
Answers
A 10% rise in the price of fish may cause demand for chicken to increase by 2%. +2/+10 = +0.2 The fall in the price of paper by 20% causes the demand for pens to increase by 5%. +5/-20 = -0.25 A 20% rise in the price of ice cream causes demand for sweets to increase by 4%. +4/+20 = +0.2 A 12% fall in the price of air fares leads to a 30% rise in the demand for foreign holidays. +30/-12 = -2.5 A 10% rise in bikes will leave the demand for cheese unaffected. 0/+10 = 0
Homework
Revise for test next lesson to review basic definitions, formulas, diagrams, elastic & inelastic numbers PeD YeD PeS CPeD