00:01
So here we're talking elasticity, right? and we are working with two cases.
00:05
So first of all, we have the price of a good falls, right? so the price of a is going down.
00:10
And we know that it's leading the quantity demanded of another good to go down, of b to go down.
00:19
But remember that this also means that the quantity of a should go up, which is what we call law of demand, right? so you see how these now are going in opposite directions? this is what we mean by substitutes.
00:38
The price of a falls, so you buy more a, and in exchange the quantity of b goes down.
00:48
So a got cheaper, so we are replacing b with a.
00:52
What does this do to the elasticity, right? the elasticity, the cross -price elasticity, is the percent change in the quantity of b over the percent change in the price of a.
01:04
So here, that's going to be a negative over a negative, which is a positive, right? so when you have substitutes, the elasticity is going to be positive, right? that's really easy to mix up, but hopefully that walkthrough explains it...