Cross Elasticity of Demand

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Definition: Cross Elasticity of Demand

Elasticity of demand is the measurement of the change in demand of a good affected by a change in its price or income.

Cross elasticity of demand measures the change in demand of good due to the change in price of another good. It is due to 2 reasons: -

  1. Substitute goods
  2. Complementary goods

In case of substitute goods, a rise in price of substitute goods would raise the demand of the good and a fall in price of substitute goods would reduce the demand of the good.

Accordingly in case of complementary, a rise in price of complementary goods would reduce the demand for the good and vice-versa.

Example: - An increase in price of sugar would increase the demand for jaggery which may act as a substitute for sugar. But an increase in price of table tennis racket may reduce the demand of table tennis balls as they are complementary.

Cross Elasticity


Cross elasticity of demand =   % change in the quantity demand of product X

% change in the price of product Y

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