Cross Elasticity of Demand

Cross Elasticity of Demand

Cross elasticity of the demand calculates the degree of responsiveness of quantity needed by a commodity A to a change in the price of another good B.

The formula is written below:

2414_Cross elasticity.png

Types of Cross Elasticity of Demand are shown below

a)      Positive Cross Elasticity

A rise in the cost of one commodity causes an increase in the demand of its substitute.

Such as margarine and butter.

b)      Negative Cross Elasticity

An increase in the price of one commodity causes the decrease in the demand for its complement.

such as tea and sugar

c)      Zero Cross Elasticity

If two goods are independent of each other, a rise or fall in the cost of one commodity will not affect the demand for the other commodity.

For Example - pen and coffee 

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