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Figure 2: Graphical example of substitute goods. The relationship between demand schedules determines whether goods are classified as substitutes or complements. The cross-price elasticity of demand shows the relationship between two goods, it captures the responsiveness of the quantity demanded of one good to a change in price of another good. [5]
In auction theory and competitive equilibrium theory, a valuation function is said to have the gross substitutes (GS) property if for all pairs of commodities: () (). I.e., the definition includes both substitute goods and independent goods , and only rules out complementary goods .
For two goods, fuel and new cars (consists of fuel consumption), are complements; that is, one is used with the other. In these cases the cross elasticity of demand will be negative, as shown by the decrease in demand for cars when the price for fuel will rise. In the case of perfect substitutes, the cross elasticity of demand is equal to ...
On the other hand, the production decisions are strategic substitutes if an increase in one firm's output decreases the marginal revenues of the others, giving them an incentive to produce less. According to Russell Cooper and Andrew John, strategic complementarity is the basic property underlying examples of multiple equilibria in coordination ...
In economics, gross substitutes (GS) is a class of utility functions on indivisible goods.An agent is said to have a GS valuation if, whenever the prices of some items increase and the prices of other items remain constant, the agent's demand for the items whose price remain constant weakly increases.
Price of related goods: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up, the quantity demanded of the ...
Trump's plan to 'drill. baby, drill' isn't likely to spark more oil production, lower gasoline prices, and help reverse inflation, analysts say.
Another example is that sometimes a toothbrush is packaged free with toothpaste. The toothbrush is a complement to the toothpaste; the cost of producing a toothbrush may be higher than toothpaste, but its sales depends on the demand of toothpaste. All non-complementary goods can be considered substitutes. [4]