Cross Price Elasticity of Demand

Cross price elasticity of demand refers to the responsiveness of demand of one good to changes in the price of a related good (either a substitute or a complementary product).

The above equation calculates the price elasticity of demand for good y for a change in price of good x.

For complementary products, cross price elasticity will have negative sign, signifying an inverse relationship between the two. So, when the price of a complementary product rises, the demand for the product itself decreases.

For a substitute, cross price elasticity will have a positive sign, signifying a positive relationship between the two. So, when the price of a substitute product rises, the demand for the product itself increases.

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Income Elasticity of Demand

Fundamentals of Economics

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In this learning path, you'll explore the fundamental dynamics of supply and demand, examining how firms operate across different market structures. You'll study macroeconomic principles including output measurement, price levels, and growth factors, while understanding business cycle fluctuations and policy responses. The path covers monetary and fiscal policy impacts, concluding with international trade dynamics and capital flows.

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