What factors determine cross-price elasticity of demand?
Aria Murphy 
The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed. If income elasticity is positive, the good is normal.
How do you find the cross-price elasticity?
Also called cross-price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in the price of the other good.
When two goods are complements to each other the cross-price elasticity will?
If the goods are close substitutes, the cross-price elasticity will be positive and large; if not close substitutes, the cross-price elasticity will be positive and small. When two goods are complements, the cross-price elasticity will be negative.
When the cross-price elasticity is?
Key Terms
| Term | Definition |
|---|---|
| Cross price elasticity of demand | Also written as X E D XED XED , measures the responsiveness of consumers purchases of one good to a change in the price of a different good (a substitute or a complement). |
What does a cross-price elasticity of 2 mean?
If the price of the complement falls, the quantity demanded of the other good will increase. The value of the cross-price elasticity for complementary goods will thus be negative. A positive cross-price elasticity value indicates that the two goods are substitutes.
What does a cross price elasticity of 0 mean?
For independent goods, the cross-price elasticity of demand is zero: the change in the price of one good with not be reflected in the quantity demanded of the other. Independent: Two goods that are independent have a zero cross elasticity of demand: as the price of good Y rises, the demand for good X stays constant.
What does a cross price elasticity of 2 mean?
