What Is the Cross Elasticity of Demand?
The cross elasticity of demand is a microeconomic concept that measures how the change in price in one product affects the change in demand of another. This number is reached by dividing the percentage change of price in the one product into the percentage change of demand for the other. Cross elasticity of demand depends on whether the products are substitutes, which are two different brands of the same product, or complements, which are two separate products that are related to each other, like a video game system and its compatible individual games. Utilizing this formula can help the makers of products devise pricing and marketing strategies. A typical example of cross elasticity of demand, also known as cross-price elasticity of demand and represented in mathematic terms as CPEoD, might involve a fast-food chain raising the price of a hamburger from $4 US Dollars (USD) to $5 USD, which represents a change of 25 percent. In the time period when this occurs, a competing chain sees t
