Search results
Results from the WOW.Com Content Network
Substitute good. In microeconomics, substitute goods are two goods that can be used for the same purpose by consumers. [1] That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less of the other good. Contrary to complementary goods and independent goods, substitute ...
In economics, a complementary good is a good whose appeal increases with the popularity of its complement. [further explanation needed] Technically, it displays a negative cross elasticity of demand and that demand for it increases when the price of another good decreases. [1] If is a complement to , an increase in the price of will result in a ...
The Cross elasticity of demand, also commonly referred to as the Cross-price elasticity of demand, allows companies to establish competitive prices against substitute goods and complementary goods. The metric figure produced by the equation thus determines the strength of both the relationship and competition between the two goods. [15]
Consumers purchase more B when the price of A increases. Example: the cross elasticity of demand of butter with respect to margarine is 0.81, so 1% increase in the price of margarine will increase the demand for butter by 0.81%. < implies two goods are complements. Consumers purchase less B when the price of A increases.
An additive utility function is characteristic of independent goods. For example, an apple and a hat are considered independent: the utility a person receives from having an apple is the same whether or not he has a hat, and vice versa. A typical utility function for this case is given at the right.
Leontief utilities. In economics, especially in consumer theory, a Leontief utility function is a function of the form: where: is the number of different goods in the economy. (for ) is the amount of good in the bundle. (for ) is the weight of good for the consumer. This form of utility function was first conceptualized by Wassily Leontief.
With respect to related goods, when the price of a good (e.g. a hamburger) rises, the demand curve for substitute goods (e.g. chicken) shifts out, while the demand curve for complementary goods (e.g. ketchup) shifts in (i.e. there is more demand for substitute goods as they become more attractive in terms of value for money, while demand for ...
The term gross substitutes is used in two slightly different meanings: I.e., an increase in the price of one commodity causes people to want strictly more of the other commodity, since the commodities can substitute each other (bus and taxi are a common example). I.e., the definition includes both substitute goods and independent goods, and ...