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Economics explained
Category:
Elasticity
Cross elasticity of demand
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Cross elasticity of demand
Cross elasticity of demand (XED) is a numerical measure of the responsiveness of the quantity demanded for one product following a change in the price of another related product, ceteris paribus.
The formula for cross elasticity of demand used is as follows :
XED =
% change in quantity demanded of product A
━━━━━━━━━━━━━━━━━━━
% change in the price of product B
Products that are substitutes for each other will have positive values for the XED
Products that are complements will have negative values of XED
Two goods that are independent have a zero cross elasticity of demand
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