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    Cross Elasticity

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    Manikanta ARIKAPUDI
    The cross elasticity of demand measures how responsive the quantity demanded of one good is to changes in the price of another good. It is calculated as the percentage change in quantity of the first good divided by the percentage change in price of the second good. Cross elasticity can be positive or negative. Positive cross elasticity occurs between substitute goods - if the price of one increases, demand for the other increases. Negative cross elasticity occurs between complementary goods - if the price of one increases, demand for the other decreases. Companies use cross elasticity to establish pricing strategies for their goods.

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    Cross Elasticity

    Uploaded by

    Manikanta ARIKAPUDI
    96 views9 pages
    The cross elasticity of demand measures how responsive the quantity demanded of one good is to changes in the price of another good. It is calculated as the percentage change in quantity of the first good divided by the percentage change in price of the second good. Cross elasticity can be positive or negative. Positive cross elasticity occurs between substitute goods - if the price of one increases, demand for the other increases. Negative cross elasticity occurs between complementary goods - if the price of one increases, demand for the other decreases. Companies use cross elasticity to establish pricing strategies for their goods.

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    The cross elasticity of demand measures how responsive the quantity demanded of one good is to changes in the price of another good. It is calculated as the percentage change in quantity of the first good divided by the percentage change in price of the second good. Cross elasticity can be positive or negative. Positive cross elasticity occurs between substitute goods - if the price of one increases, demand for the other increases. Negative cross elasticity occurs between complementary goods - if the price of one increases, demand for the other decreases. Companies use cross elasticity to establish pricing strategies for their goods.

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    Download as PPTX, PDF, TXT or read online from Scribd
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    96 views9 pages

    Cross Elasticity

    Uploaded by

    Manikanta ARIKAPUDI
    The cross elasticity of demand measures how responsive the quantity demanded of one good is to changes in the price of another good. It is calculated as the percentage change in quantity of the first good divided by the percentage change in price of the second good. Cross elasticity can be positive or negative. Positive cross elasticity occurs between substitute goods - if the price of one increases, demand for the other increases. Negative cross elasticity occurs between complementary goods - if the price of one increases, demand for the other decreases. Companies use cross elasticity to establish pricing strategies for their goods.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    Cross Price Elasticity

    What Is Cross Elasticity of Demand?


    The cross elasticity of demand is an economic concept that measures the
    responsiveness in the quantity demanded of one good when the price for another
    good changes. Also called cross-price elasticity of demand, this measurement is
    calculated by taking the percentage change in the quantity demanded of one good
    and dividing it by the percentage change in the price of the other good.

    Cross Elasticity of Demand Formula

    ​ xy​= Percentage Change in Quantity of X
    E
    Percentage Change in Price of Y
    Understanding Cross Elasticity of Demand
    In economics, the cross elasticity of demand refers to how sensitive
    the demand for a product is to changes in the price of another
    product.

    Substitute and Complementary Products


    • As mentioned earlier, cross elasticity measures the demand
    responsiveness in relation to related products. And these related
    products can be either substitutes or complementary products. Let us
    understand the difference between the two.
    Substitute Products
    Substitute products are goods that are in direct competition. An increase in the price of one product
    will lead to an increase in demand for the competing product. For instance, an increase in the price
    of petrol will force consumers to go for diesel and increase the demand for diesel. Now, the cross
    elasticity value for two substitute goods is always positive.
    Complementary Products
    Complementary goods, on the other hand, are products that are in demand together. An ideal
    example would be coffee beans and coffee paper filters. If the price of coffee increases, then the
    demand for filters would reduce because the demand for coffee will reduce. The cross elasticity of
    demand for two complementary products is always negative
    Usefulness of Cross Elasticity of Demand
    Companies utilize the cross elasticity of demand to 
    establish prices to sell their goods. Products with no substitutes have the ability to be
    sold at higher prices because there is no cross-elasticity of demand to consider.
    However, incremental price changes to goods with substitutes are analyzed to
    determine the appropriate level of demand desired and the associated price of the
    good.

    • Additionally, complementary goods are strategically priced based on


    the cross elasticity of demand. For example, printers may be sold at
    a loss with the understanding that the demand for future
    complementary goods, such as printer ink, should increase
    What Does the Cross Elasticity of Demand Measure?
     Cross elasticity of demand evaluates the relationship between two
    products when the price in one of them changes. It shows the relative
    change in demand for one product as the price of the other rises or falls.
    What is positive cross elasticity of demand ?
    A positive cross elasticity of demand means that the demand for
    good A will increase as the price of good B goes up. This means
    that goods A and B are good substitutes. so that if B gets more
    expensive, people are happy to switch to A. An example would be
    the price of milk. If whole milk goes up in price, people may
    switch to 2% milk.

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