Economics Elasticity Of Demand Questions Medium
Cross-price elasticity of demand is calculated by dividing the percentage change in the quantity demanded of one good by the percentage change in the price of another related good. The formula for cross-price elasticity of demand is as follows:
Cross-price elasticity of demand = (Percentage change in quantity demanded of Good A) / (Percentage change in price of Good B)
This calculation helps to determine the responsiveness of the quantity demanded of one good to a change in the price of another related good. If the cross-price elasticity of demand is positive, it indicates that the two goods are substitutes, meaning that an increase in the price of one good leads to an increase in the quantity demanded of the other good. On the other hand, if the cross-price elasticity of demand is negative, it suggests that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the quantity demanded of the other good.