If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

## AP®︎/College Microeconomics

### Course: AP®︎/College Microeconomics>Unit 2

Lesson 5: Other elasticities

# Cross-price elasticity of demand

Cross elasticity of demand refers to the way that changes in the price of one good can affect the quantity demanded of another good. This relationship can vary depending on whether the two goods are substitutes, complements, or unrelated to each other. Created by Sal Khan.

## Want to join the conversation?

• Please see the most common answered question above for more detail.

All of the above makes sense but what if the first airline dropped their price 50 dollars? The cross elasticity would be -13.4, that doesn't make them compliments. just the same if the e-reader raised its price 20 dollars. +.42 would not make the e-reader and e-book substitutes. Please help, no one ever answers my questions • If airline 1 dropped their price the Ec would still be positive.

% change in Quantity = -200/100 = -200% and,
% change in Price = -50/975 = -5.1% therefore,
Ec = -200/-5.1 = 39.21

I think you just missed a negative sign in your formula. If you try again for an increase in the price of the e-reader you should get a negative Ec.
• I'm a bit confused, why would you get a negative CED for a compliment? • What is the possible and most probable development of the first example? The Airline 2 has 67% increase in Q. That means that the price will go up as well, actually much more than by 50\$. Will it result in infinite alternating increases of both airline companies? Thanks • Good question. If you assume that there are only 2 airline companies in the world, that those 400 hundred passangers are willing to pay a fortune, and that they are all ten times wealthier than Bill Gates than the answer is yes! You can never forget that microeconomics is just an oversimplistic mathematical model. It is a useful tool to comprehend reality but has its limitations. That said, the mathematical answer to your question is yes. The economic answer is no.
• when Sal calculating the % change of A1' price , the result of 50/1025 on calculator is 0.49 . why Sal write 4.9 % instead of 0.49 % ? • Because we are looking for the % change. So you multiply 0.049 by 100% = 4.9%.

When trying to find the Price Elasticity of Demand you divide the % of the quantity demanded by the % of the price. If you see the video "Price Elasticity of Demand" at , I think you will get it.
• What does negative and positive CED mean? • I'm guessing the purpose of cross-elasticity of demand is to elucidate the link between changes in related goods (i.e. substitutes and complements) and demand. Am I missing something? • Nope, that is correct. The purpose of cross-price elasticity is to determine whether goods are complements or substitutes, and the degree to which they are substitutable or complementary. For instance, a lot of people might assume that apples and oranges are substitutes, but what if you are making a fruit salad? Then they are complements. That's why its better to see how people actually react to price changes using cross price elasticity, rather than make assumptions.
• - pardon, can somebody explain this calculation for me? Why did he put 50 over 1025? I mean? What´s the explanation within this context? Why not 50 over 1050. Thank you and you have my vote when you answer me. • In this video, Sal says that we have to take the change over the average of the initial and final values when calculating elasticity, but when doing elasticity of demand and supply we took it over the initial value. Is there an exception with those two? • Hi, my understanding is that Sal used something called the mid-point method. This gives an average of price elasticity between the two points. If we only use the value of the initial, it calculates the price elasticity of that specific point (so the gradient at that point) This method is appropriate at that time, as the demand curve in the previous chapters are simplified to a straight line. However, in a more complicated and sensible context, the demand curve would be, a curve. Thus, the gradient (PED) would be changing as you move along an axis. Therefore, it is better to use the mid-point method to obtain an average.
• i'm not sure how using "the average" rather than the base makes any logical sense at all.... • In the basket ball and ebook example starting at ish what if there was someone who wanted to buy your ebook and a basketball but couldn't afford both because of the price rise wouldn't that mean that for one of the products demand would drop slightly and mean that they are related. 