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Subject: Economics , asked on 30/11/13

What is cross elasticity of demand ? Explain it with examples?

The   cross elasticity of demand   or   cross-price elasticity of demand   measures the responsiveness of the  demand  for a  good  to a change in the price of another good. It is measured as the  percentage change demand for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the price of fuel, the demand of new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be:   $frac{-20 %}{10 %}=-2$

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it measures the change in demand for main commodity due to change in prices of substitute or complementary commodity

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