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What is cross demand?
Cross demand refers to the various amounts of goods which will be purchased at various prices not of the goods but of other related goods. These related goods are either substitutes or complementary goods. If they are substitutes obviously they satisfy the same want. The more the consumer buys of one, the less he requires of the other. For example, tea and coffee are good substitutes. If the price of tea rises, the consumer may buy less of it. Thus, a rise in price of tea affects the demand for coffee. On the contrary if both the commodities are jointly demanded to satisfy the same want they may be said to the price of bread will increase the demand for butter and vice-versa. The cross demand curve for butter in relation to the price of a related product can be explained with the help of cross demand schedule as follows:
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Substitute products
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Complementary products
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Price of Y
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Quantity of X
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Price of Y
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Quantity of X
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10
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20
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10
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30
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|
12
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24
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12
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24
|
|
20
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30
|
20
|
20
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The demand curve of substitute goods. It has positive slope because a decrease (or increase) in the price of Y will lead to a decrease (or increase) in the demand.
X and Y are complementary goods. If the price of Y increases from OP to OP1, then the demand for Xdecreases from OM to OM1.
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