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Cross-Price Elasticity Formula by Catherine Barry

Author: Sophia

Video Chapters

(00:00 - 00:23) Introduction
(00:24 - 00:46) Cross-Price Elasticity
(00:47 - 01:32) Key Term Review: Complement & Substitute Goods
(01:33 - 03:03) Coke Machine Example
(03:04 - 04:03) PB&J Example
(04:04 - 04:49) Elasticity Formula
(04:50 - 05:18) Review

Terms to Know

Complement Goods: A good for which the demand increases as the price of an associated good decreases.
Cross-Price Elasticity: Change of demand that occurs due to change in price of substitutes or complements.
Substitute Goods: As the price of one good increases, the demand for an alternative good meeting the same consumer needs increases.

Formulas to Know

Cross-Price Elasticity: $E equals fraction numerator bevelled fraction numerator open parentheses Q subscript A minus Q subscript B close parentheses over denominator open parentheses Q subscript A plus Q subscript B close parentheses end fraction over denominator bevelled fraction numerator open parentheses P subscript A minus P subscript B close parentheses over denominator open parentheses P subscript A plus P subscript B close parentheses end fraction end fraction w h e r e space Q subscript A space & space Q subscript B space a r e space o f space o n e space g o o d space a n d space P subscript A space & space P subscript B space a r e space o f space a space r e l a t e d space g o o d.$