Demand and Supply

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Types of Markets in Economics

Demand Function and Demand Curve

Supply Function and Supply Curve

Shifts in Demand and Supply Curves

Aggregating Demand and Supply Curves and Concept of Equilibrium

Excess Demand and Excess Supply

Stable and Unstable Equilibrium

Types of Auctions

Four Methods of Distributing Government Securities

Consumer and Producer Surplus

Effects of Government Regulation on Demand and Supply

Price Elasticity of Demand

Income Elasticity of Demand

Cross Price Elasticity of Demand

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Lesson 14 of 14

Cross Price Elasticity of Demand

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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.