Cross Price Elasticity of Demand Formulae

You are here

*Please note: you may not see animations, interactions or images that are potentially on this page because you have not allowed Flash to run on S-cool. To do this, click here.*

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:

Cross Price Elasticity of Demand Formulae

Where: EY = The income elasticity of demand
Δ = 'change in'
Qd = Quantity demanded
Y = Real income

S-cool exclusive FREE TUTORIAL offer!