Cross Elasticity

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1     Cross Elasticity

Cross demand refers to the quantities of a commodity or service which will be purchased with reference to changes, not of that particular commodity, but of other inter-related commodities, other things remaining the same.

Cross elasticity of X = % change in quantity demand of X / % change in quantity of Y

Inter-related commodities can be either substitutes or complementary

1.1    Substitute Products

When price of a substitute increases, quantity demanded will increase thus cross demand curve slopes upwards (i.e. is positive) showing that more quantities of a commodity will be demanded whenever there is a rise in price of a substitute commodity.


1.2    Complementary Goods

When price of a complementary good increases, quantity demanded will decrease thus cross demand curve slopes downwards.