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Cross Price Elasticity of Demand – Meaning, Formula, Examples | How to Calculate? [Video]

Cross Price Elasticity of Demand – Meaning, Formula, Examples | How to Calculate?

In this video tutorial, we learn what is cross-price elasticity, its formula along with calculation examples and downloadable excel template.

๐–๐ก๐š๐ญ ๐ข๐ฌ ๐‚๐ซ๐จ๐ฌ๐ฌ ๐๐ซ๐ข๐œ๐ž ๐„๐ฅ๐š๐ฌ๐ญ๐ข๐œ๐ข๐ญ๐ฒ ๐จ๐Ÿ ๐ƒ๐ž๐ฆ๐š๐ง๐?
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Cross Price Elasticity of Demand measures price-to-demand relation i.e change in the quantity demanded by one product with a change in the price of the second product where, if both products are substitutes, it will show a positive cross elasticity of demand.

๐…๐จ๐ซ๐ฆ๐ฎ๐ฅ๐š
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The cross-price elasticity of demand is represented as follows,

Formula = (โˆ†QX/QX) รท (โˆ†PY/PY)

Further the formula is elaborated as follows,

Formula = (Q1X โ€“ Q0X) / (Q1X + Q0X) รท (P1Y โ€“ P0Y) / (P1Y + P0Y),

๐„๐ฑ๐š๐ฆ๐ฉ๐ฅ๐ž
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Let us take the simple example of gasoline and passenger vehicles. Now let us assume that a surge of 60% in gasoline price resulted in a decline in the purchase of passenger vehicles by 15%. Calculate the cross-price elasticity of demand in this case.

Given,

Percentage Change in Quantity of Passenger Vehicles =.-15%
Percentage Change in Price of Gasoline =60%

Using above formula we get,

= -15% /60%
= -25%

To know more about the ๐‚๐ซ๐จ๐ฌ๐ฌ ๐๐ซ๐ข๐œ๐ž ๐„๐ฅ๐š๐ฌ๐ญ๐ข๐œ๐ข๐ญ๐ฒ ๐จ๐Ÿ ๐ƒ๐ž๐ฆ๐š๐ง๐, you can go to this ๐ฅ๐ข๐ง๐ค ๐ก๐ž๐ซ๐ž:- https://www.wallstreetmojo.com/cross-price-elasticity-of-demand/

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