In this video tutorial, we learn what is cross-price elasticity, its formula along with calculation examples and downloadable excel template.
๐๐ก๐๐ญ ๐ข๐ฌ ๐๐ซ๐จ๐ฌ๐ฌ ๐๐ซ๐ข๐๐ ๐๐ฅ๐๐ฌ๐ญ๐ข๐๐ข๐ญ๐ฒ ๐จ๐ ๐๐๐ฆ๐๐ง๐?
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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.
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The cross-price elasticity of demand is represented as follows,
Formula = (โQX/QX) รท (โPY/PY)
Further the formula is elaborated as follows,
Formula = (Q1X โ Q0X) / (Q1X + Q0X) รท (P1Y โ P0Y) / (P1Y + P0Y),
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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 ๐๐ซ๐จ๐ฌ๐ฌ ๐๐ซ๐ข๐๐ ๐๐ฅ๐๐ฌ๐ญ๐ข๐๐ข๐ญ๐ฒ ๐จ๐ ๐๐๐ฆ๐๐ง๐, you can go to this ๐ฅ๐ข๐ง๐ค ๐ก๐๐ซ๐:- https://www.wallstreetmojo.com/cross-price-elasticity-of-demand/
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