Cross Price Elasticity of Demand Formulae
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Cross Price Elasticity of Demand Formulae
A definition and the formula
If you understand the concept of price elasticity of demand, then it is fairly easy to grasp cross price elasticity of demand. The issue is still how responsive demand is to a given price change, the difference here is that one is measuring the responsiveness of the quantity demanded of one good with respect to a given price change in a different good, ceteris paribus.
As you can see, the formula used to calculate the cross price elasticity of demand is basically the same as the one used to calculate the price elasticity of demand, except for the distinction between good A and good B:
Where: | E_{Y} = The income elasticity of demand |
Δ = 'change in' | |
Q_{d} = Quantity demanded | |
Y = Real income |