Cross Elasticity:

The measure of cross elasticity of demand provides a numeric value. It is estimated as

a ratio of proportionate (or percentage) change in quantity demanded of good X to the
proportionate (or percentage) change in the price of the related good Y. That is —

The proportionate change in quantity demanded is estimated as an absolute change in

quantity demanded divided by the initial quantity demanded. Similarly, the proportionate
change in price is the absolute change in price divided by the initial price. Thus, the
above formula can be written as —

Where Qx is the initial quantity demanded of the product X, ΔQx is the absolute change
in the quantity demanded of X, P y is the initial price of the product Y and ÄP is the
absolute change in the price of Y. The cross elasticity of demand is denoted by e xy. The
formula can be re-written as —

This formula is used for estimating the cross elasticity of demand. The estimate of
elasticity can assume a positive or a negative value depending upon the fact that the
two products are substitute or complement to each other respectively.