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Cross-Price Elasticity of Demand is explained below:
Cross price elasticity of the demand is the percentage change in the quantity demanded of a particular good, with respect to the percentage change in price of another related good.
Pb?da = Percentage change in Demand for good a
Percentage change in Price of good b
If, for instance, the demand for the butter rose by 2% when the cost of the margarine rose by 8%, then the cross cost elasticity of demand of butter with respect to price of margarine will be as follows.
Pb?da = 2% = 0.25
8%
If, on the other hand, the price of bread (a compliment) rose, the demand for butter would decrease. If a 4% rise in price of bread led to a 3% fall in the demand for butter, the cross-price elasticity of demand for butter with respect to bread would become:
Pb?da = - 3% = - 0.75
4%
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