Cross-Price Elasticity of Demand
Cross-price elasticity of demand (XED) measures how quantity demanded of one good responds to price changes in another good. It is calculated as the percentage change in quantity demanded of good A divided by the percentage change in price of good B. XED indicates whether goods are substitutes or complements.
Real World
When Uber raised its surge pricing in London during 2022 rail strikes, downloads of the rival app Bolt jumped 40% in a single weekend, demonstrating strong positive cross-price elasticity between substitute ride-hailing services.
Exam Focus
Always state the sign and interpret it — positive means substitutes, negative means complements — then link magnitude to closeness of relationship.
How well did you know this?