Impact of Pricing on Demand for Electric Vehicles and Charging Stations

Running head: ECONOMICS ASSINMENT
Economics assignment
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ECONOMICS ASSINMENT
First part
The cross-price elasticity usually measures the responsiveness of the amount of
quantity demanded for a good to the change in the pricing of another commodity. When the
cross-price elasticity is negative it denotes that products are complements. On the other hand,
when the cross-price elasticity is positive, it denotes that the products are substitutes. In case
of complementary goods, when there is an increase in the price of one good, there will be
decrease in the amount demanded of another good (Burke & Liao, 2015). This results to a
negative value for the cross elasticity of demand. Therefore, when the cost of a product X
falls down, the demand curve of commodity Y will be moving to the right reflecting a rise in
X’s demand. This will then result in a negative value in case of a cross elasticity of a demand.
It happens exactly in case of substitutes. Here, the electric vehicle charging and the market
for electric vehicles are complements which suggests that one is used with the other. In this
case the cross-price elasticity of demand will be negative as when there will be rise in the
price of electric vehicles, the demand for electric vehicle charging will also go down.
However, in case of perfect sub substitutes like those of conventional vehicles using fuels,
acts as a perfect substitutes for the electric vehicles. Therefore, in case of perfect substitutes
the cross elasticity of demand will be positive infinity. In case of substitute goods E>0.
Substitutes can be termed as those commodities that can be used in exchange for one another.
On the other hand, complementary goods are those goods which people tend to consume
together. In case of independent goods, there is no relationship between the two goods (Saw,
Ye & Tay, 2016). The cross price elasticity of demand therefore measures the responsiveness
of the quantity demanded of one commodity when compared with a change in the price of
another commodity.
The plug-in electric automobiles which uses one or more electric motors and uses
energy which is usually stored in the batteries that are rechargeable in nature, are termed as

Price of electric vehicles in the market
Quantity of electric vehicles demanded
D
ECONOMICS ASSINMENT
electric cars. The price of the electric vehicle market affects the demand for electric cars.
When the price of the electric vehicle market becomes expensive, the demand for electric
cars decreases. The demand for electric vehicles will fall down when the electric will become
expensive. On the other hand, when the price of electric vehicles falls down, the demand for
electric cars will increase. As according to the law of demand it is known, that when the price
of any kind of good falls down, the quantity demanded of electric cars will increase.
Fig1: Quantity of electric vehicles demanded
(Source: Baumol & Blinder, 2015).