cross

price
elasticity
Presented by: Micheal Douglas Garcia
Microeconomics
Formula
 CROSS PRICE ELASTICITY

Sample Problem
Question 1
When the price of apple pie increases by 25%,

percent, the quantity demanded of icecream

decreases by 48%, percent.

What is the cross-price elasticity of demand for

sausage and cheese?
 CROSS PRICE ELASTICITY

Sample Problem
Solution
To find the cross-price elasticity of icecream in responce
in the change of price of
apple pie, we apply this
formula:
 CROSS PRICE ELASTICITY

Sample Problem

Explanation
In the given problem we can see
that the cross price elasticity is
-1.92 and as explained that when the cross price is negative it is a
complement and that the goods are a complement of each other.
Since the cross price elasticity of demand is somewhere along -1
and negative infinity then the goods perfectly complement each
other and that should be consumed at a fixed portion. Please refer
on the next slide.
CROSS PRICE ELASTICITY

Sample Problem
Explanation

 CROSS PRICE ELASTICITY

Sample Problem
Question 2
We will look at demand at Disneyland Resorts

Orlando and Universal Resorts Orlando. Let us say

that Disney increases its daily ticket price from $115
to $149. As a result, demand at Universal increases
from 11,000 to 12,750.
 CROSS PRICE ELASTICITY

Sample Problem
Solution
In finding for the cross price elasticity in this given we need to
first find the percentage change of both price and demand.

 CROSS PRICE ELASTICITY

Sample Problem
Solution
After finding the percentage change of both price and
demand. Then we can use the given formula:

 CROSS PRICE ELASTICITY

Sample Problem
Explanation
While in this given example the cross price elasticity falls

on a positive sign and while we have learned that negative sign

the goods are complementary. In this case, a positive cross
elasticity demand calls upon a substitute of Goods. Moreover, if
we refer back to slide 6. This given this signals that the two
products are a substitute and relatively elastic.
 substitute During the previous slides
we have talked cross

vs. price elasticity of demand

and we have mentioned

complement substitute and

complement but what are
these exactly?
 SUBSTITUTE GOODS
What is Substitute
Substitute, or substitutable good, in economics and consumer theory
refers to a product or service that consumers see as essentially the
same or similar-enough to another product. To put it simply,
substitute is a good that can be used in place of another

The cross elasticity of demand for substitute

goods is always positive because demand for
one good increases when the price for the
substitute good increases
 COMPLEMENTARY
GOODS
What is Complement
A Complementary good is a product or service that adds
value to another. In short, they are two goods that the
consumer uses together.

On the other hand, the cross elasticity of demand for

complementary goods is negative. As the price for one
item increases, an item closely associated with that
item and necessary for its consumption decreases
because the demand for the main good has also
dropped
substitute complement
Coke vs Pepsi Fish and chips

Android vs Apple Shoes and polish

Smart vs Globe Pasta and Pasta sauces

Tea and coffee Mouse and Keyboard

Cereal Brands Smartphones and apps

thank

you!
Micheal Douglas Garcia
Microeconomics
 references
https://www.tutor2u.net/economics/reference/substitutes-and-complements
https://xplaind.com/679438/substitute-vs-complementary-goods
https://www.economicshelp.org/blog/glossary/complementary-goods/
https://www.investopedia.com/terms/c/cross-elasticity-demand.asp
https://boycewire.com/complementary-goods-definition/
https://boycewire.com/cross-price-elasticity-of-demand/
https://xplaind.com/206686/cross-elasticity-of-demand