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Cross Elasticity of Demand
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Cross Elasticity of Demand Cross elasticity of demand (XED) shows how demand for one product is proportionally affected by changes in the price of another product. Recall that the PED of a product is affected most dramatically by the number and similarity of other alternative products, substitute products; XED is the method by which firms discover whether or not a product has substitutes, how close the alternative product is in fulfilling the same use (utility) as the original product or if the original product has any other products whose utility improves the sale of the original product, complementary products. Measuring Cross elasticity of demand Cross elasticity of demand is measured using a simple formula: XED = the percentage change in Quantity Demanded of good x or % ? Qd x the percentage change in Price of good y %? Pn y NB The answer to this equation (it's coefficient) will almost always be negative...
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