1. AS Economics
Cross
Price Elasticity
of Demand
Learning Objectives
To understand how changes in the price
of one good can affect the quantity
demanded of another good
To be able to calculate XED

2. Cross Price Elasticity of Demand (XED)
XED measures the responsiveness of demand for good A to changes in
the price of good B
Formulae:
XED =
Percentage change in the quantity demanded of good A
Percentage change in the price of good B

3. Cross Price Elasticity of Demand (XED)
XED measures the responsiveness of demand for good A to changes in
the price of good B
XED =
Percentage change in the quantity demanded of good A
Percentage change in the price of good B
or
∆QA
Q
A
÷
∆PB
PB
Calculate XED for each of the following:
1. A 5% increase in the price of Coke causes a 7.5% increase in
demand for Pepsi.
2. An increase in the price of bread from £1.20 to £1.60 per loaf causes
a fall in demand for butter from 300 to 270 units sold.

4. Cross Price Elasticity of Demand (XED)
XED measures the responsiveness of demand for good A to changes in
the price of good B
XED =
Percentage change in the quantity demanded of good A
Percentage change in the price of good B
or
∆QA
Q
A
÷
∆PB
PB
Interpreting XED results:
Positive XED:
Substitute goods – as price of good B rises, quantity demanded of good A rises
E.g. Coke and Pepsi
Negative XED:
Complementary goods – as price of good B rises, quantity demanded of good
A falls. E.g. bread and butter

5. Cross Price Elasticity of Demand (XED)
XED measures the responsiveness of demand for good A to changes in
the price of good B
XED =
Percentage change in the quantity demanded of good A
Percentage change in the price of good B
or
∆QA
Q
A
÷
∆PB
PB
For each of the following calculate the XED and identify if the goods are
substitutes or complements:
1. The price of petrol rises by 20% causing demand for cars to fall 5%
2. Demand for margarine falls 10% following a 20% cut in butter prices
3. A 20% rise in the price of toothpaste, a 15% fall in demand for cats.
Fish and chips are complementary goods with a cross elasticity of demand equal
to -8. Currently 50 000 fish are sold.
Calculate the new demand for fish following a 2%
cut in the price of chips.

6. Cross Price Elasticity of Demand (XED)
XED measures the responsiveness of demand for good A to changes in
the price of good B
XED =
Percentage change in the quantity demanded of good A
Percentage change in the price of good B
or
∆QA
Q
A
÷
∆PB
PB
For each of the following calculate the XED and identify if the goods are
substitutes or complements:
1. The price of petrol rises by 20% causing demand for cars to fall 5%
2. Demand for margarine falls 10% following a 20% cut in butter prices
3. A 20% rise in the price of toothpaste, a 15% fall in demand for cats.
Fish and chips are complementary goods with a cross elasticity of demand equal
to -8. Currently 50 000 fish are sold.
Calculate the new demand for fish following a 2%
cut in the price of chips.