DEMAND ANALYSIS - Rockhurst University

Transcript DEMAND ANALYSIS - Rockhurst University

MARKET BOUNDARIES  BUYER POINT OF VIEW: No potential seller exists outside of the market boundaries (within a reasonable price range)  SELLER POINT OF VIEW: No potential buyer exists outside of the market boundaries (within a reasonable price range)  BOTH POINTS OF VIEW MUST HOLD  CROSS PRICE ELASTICITY measures

MARKET BOUNDARIES X represents buyers O represents sellers X X X O X X O O

CROSS-PRICE ELASTICITY E X,Y = PERCENTAGE CHANGE IN QUANTITY (X) PERCENTAGE CHANGE IN PRICE OF ANOTHER GOOD (Y) Qx-Qx = Qx+Qx Py-Py Py+Py

CROSS-PRICE ELASTICITY  Exy<0===> x and y are complements  Exy>0 ===> x and y are substitutes (or in same market)  Exy =0 ==> x and y are unrelated

N represents a new firm U represents your firm MARKET BOUNDARIES X represents buyers O represents sellers N X X X O X X U O O Cross Price Elasticity w.r.t. New Firm?

N represents a new firm U represents your firm MARKET BOUNDARIES X represents buyers O represents sellers X N X X O X X U O O Cross Price Elasticity w.r.t. New Firm?

Positive , Negative, or Zero

Percentage Change

0.5

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0.1

0 -0.1

-0.2

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-0.4

-0.5

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