Question

What is the formula for the cross-price elasticity of demand?

Short answer

The formula for the cross-price elasticity of demand is$E=\frac{\%∆Q_A}{\%∆P_B}$.

Step-by-step solution

Step 1. Cross-price elasticity

The percentage change in quantity demanded of one item (say A) as a result of a percentage change in price of another good is referred to as cross-price elasticity (say B).

Step 2. Formula

In the case of substitute and complement goods, the cross-price elasticity formula is utilized. In this case, substitute goods are items that may be utilized for the same purpose; as a result, if the price of one good rises demand for substitute goods is likely to rise as well. And complementary products are those in which a fall in the price of one good leads to a rise in demand for another.

The following is the cross-price elasticity formula:

$cross-priceelasticityofdemand=\frac{\%changeinquantitydemandedofonegood}{\%changeinpriceofanothergood}$

or

$E=\frac{\%∆Q_A}{\%∆P_B}$