What is cross elasticity of demand ? Explain it with examples?

The cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change demand for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the price of fuel, the demand of new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be: frac{-20 %}{10 %}=-2

  • 1

it measures the change in demand for main commodity due to change in prices of substitute or complementary commodity

  • 2
What are you looking for?