Cross-Price Elasticity of Demand Measure
Jump to navigation
Jump to search
A Cross-Price Elasticity of Demand Measure is an cross elasticity measure that measures the responsiveness of the economic demand for an economic resource with respect to the price change for another economic resource.
- Context:
- Example(s):
- Counter-Example(s):
- See: Economics, Demand (Economics), Good (Economics), Percentage Change.
References
2016
- (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/cross_elasticity_of_demand Retrieved:2016-1-5.
- In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus. It is measured as the percentage change in quantity demanded for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the price of fuel, the demand of new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be: [math]\displaystyle{ \frac{-20 \%}{10 \%}=-2 }[/math] . A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products. Assume products A and B are complements, meaning that an increase in the demand for A accompanies an increase in the quantity demanded for B. Therefore, if the price of product B decreases, the demand curve for product A shifts to the right, increasing A's demand, resulting in a negative value for the cross elasticity of demand. The exact opposite reasoning holds for substitutes.
2004
- (Litman, 2004) ⇒ Todd Litman. (2004). “Transit Price Elasticities and Cross-elasticities.” In: Journal of Public Transportation, 7(2).
1988
- (Cooper, 1988) ⇒ [[Lee G. Cooper. (1988). “Competitive Maps: The Structure Underlying Asymmetric Cross Elasticities.” In: Management Science, 34(6).