Grade Booster student workshops are back in cinemas for 2022. Learn more

Economics

Student Videos

Cross Price Elasticity of Demand (Evaluation Skills Video)

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

In this short video we build 3 analysis and evaluation points for this question: "Evaluate the significance of the coefficient of cross price elasticity for a business"

Cross Price Elasticity of Demand (Evaluation Skills Video)

Core Notes:

Evaluate the significance of the coefficient of cross price elasticity for a business

A high and positive coefficient of CPED is important for a business because it suggests a strong substitution effect if relative prices fall.

Eval: However the size of the substitution effect will be lower if consumers perceive a relative price change to be temporary and not permanent.

A negative CPED says that two products are complements – this might persuade businesses to bundle products to increase revenue

Eval: Bundling does not always work. Consumers may not like the increased complexity of bundled products and working out the perceived value of the bundled offer

A low positive cross price elasticity of demand between competing sellers suggests the possibility of increased revenue from price collusion

Eval: However, price collusion is illegal and risks heavy fines for those caught. Game theory suggests that most cartels eventually collapse.

Boston House,
214 High Street,
Boston Spa,
West Yorkshire,
LS23 6AD

Tel: +44 0844 800 0085

© 2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.