Question

Explain cross elasticity of demand.

Answer 1

“The cross elasticity of demand is the proportional change in the quantity of X good demanded resulting from a given relative change in the price of a related good Y”
Types of cross elasticity:

1) Positive cross elasticity - When a change in the price of one commodity changes the demand for another commodity in the same direction is called as positive cross elasticity.

2) Negative cross elasticity - When change in the price of one commodity changes the demand of the other commodity in opposite direction then it is known as negative cross elasticity.

3) Zero cross elasticity - Commodities which are not related to each other have zero cross elasticity of demand.