Cross-Elasticity of Demand


The concept describes the important economic principle of cross-elasticity of demand. It explains its strengths and weaknesses for pricing and competition and uses illustrative case studies across different industries and sectors to highlight its importance in business.

Technique Overview

Cross-Elasticity of Demand

Cross-Elasticity of Demand Definition

Cross-elasticity of demand is a measure of how much the quantity demanded of one good responds to a change in the price of another good, calculated as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good. It can take positive or negative values, depending on whether both goods are substitutes (positive value) or complements (negative value) (Baumol and Blinder, 2012; Mankiw, 2009).

Cross-Elasticity of Demand Description *

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Business Evidence

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Business Application

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Professional Tools

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Further Reading

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Cross-Elasticity of Demand References (4 of up to 20) *

  • Baumol, W., Blinder, A. (2012), Microeconomics: Principles and Policies, Cengage Learning.
  • Bonfrer, A., Berndt, E.R., Silk, A. (2006), Anomalies in Estimates of Cross-Price Elasticities for Marketing Mix Models: Theory and Empirical Test, NBER Working Paper No. 12756.
  • Eugster, C.C., Kakkar, J.N., Roegner, E.V. (2000), Bringing discipline to pricing, McKinsey Quarterly, February.
  • Fisher, D. (2011), Frack Gas Not Likely To Displace King Coal, Study Suggests, Forbes, Sep 1st, available at: http://www.forbes.com/sites/danielfisher/2011/09/01/frack-gas-not-likely-to-displace-king-coal-study-suggests/

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