Cross Elasticity of Demand

• It measures the responsiveness of quantity demanded of a

good to a change in the price of another good. To compute
the cross elasticity of a product, use the formula:

Applying mathematical symbols:

(change in quantity) %ΔQ = Q2-Q1/Q1 ×100
(change in price of good Y) %ΔPY P2-P1/P1 ×100
 Complementary Goods-are goods that are used in conjunction
with other goods. Cross elasticity of demand is negative.

 Substitute Goods-goods that can be used in place of another

good. Cross elasticity of demand is positive.

Independent Goods-goods that were unrelated with each

other.Cross elasticity of demand is zero.
 EXAMPLE#1:Substitute Goods
Product A:Margarine Product B:Butter
Price: P20→P25 QD: 5→10
10-5 =5/5 or 1
____5_____ 100%
P25-P20 =5/20
P20 .25 or 25%

100%/25%=4
 EXAMPLE#2:
Product A:Pepsi Product B:Coke
Price: P20→P15 QD: 5→3

3-5 =-2/5
__5___ -.4 or -40%
P15-P20 =-5/20
P20 -.25 or -25%
=-40%/-25%
=1.6
 EXAMPLE#1:Complementary Goods
Product A:Ink Product B:Printer
Price:P800→P1000 QD:2→1
1-2 =-1/2
___2___ -.5 or -50%
P1000-P800 =200/800
P800 .25 or 25%

-50%/25%=-2
 EXAMPLE#2:
Product A:Bread Product B:Butter
Price:P7→P5 QD:5-10
10-5 =5/5 or 1
5__ 100%
P5-P7 =-2/7
P7 -.29 or -29%

100%/-29%=-3.45