Topic Videos
Cross Price Elasticity of Demand
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 23 Nov 2020
This updated revision video looks at cross price elasticity of demand.
Key revision notes on cross price elasticity of demand
Cross-price elasticity of demand (XED) measures the responsiveness of demand for good X following a change in the price of good Y (where Y is a related good).
With cross-price elasticity, we make an important distinction between substitute and complementary goods.
Cross price elasticity of demand = % change in demand for X / % price in Y
Substitutes are goods or services in competitive demand. Substitutes have a positive cross price elasticity of demand. (I.e. XED > 0) which means that an increase in the price of one product will lead to a rise in demand for a substitute.
Complements are goods or services in joint demand. Cross price elasticity of demand (XED) for two complements will be negative. An increase in the price of Good T will lead to a contraction in demand for T and a fall in demand for a complement, good S.
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