Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
Concept
Cross elasticity of demand
Summary
In economics, the cross (or cross-price) elasticity of demand measures the effect of changes in the price of one good on the quantity demanded of another good. This reflects the fact that the quantity demanded of good is dependent on not only its own price (price elasticity of demand) but also the price of other "related" good.
The cross elasticity of demand is calculated as the ratio between the percentage change of the quantity demanded for a good and the percentage change in the price of another good, ceteris paribus:The sign of the cross elasticity indicates the relationship between two goods. A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two products are substitutes.
If products A and B are complements, an increase in the price of B leads to a decrease in the quantity demanded for A, as A is used in conjunction with B. Equivalently, if the price of product B decreases, the demand curve for product A shifts to the right reflecting an increase in A's demand, resulting in a negative value for the cross elasticity of demand. If A and B are substitutes, an increase in the price of B will increase the market demand for A, as customers would easily replace B with A, like McDonald's and Domino's Pizza.
The concept of "price elasticity of demand" originated by Alfred Marshall predicted relative changes between price and quantity. In the Cellophane case, Professor Stocking believed that a change in the price of one product will induce a price change of its rivalry in the same direction, so he firstly regarded that movement of two prices in the same direction explicitly reflects a high cross-price elasticity. However, during 1924–1940, du Pont cellophane prices moved independently from its perceived competitors' (waxed paper, vegetable parchment, etc) price; independent price movements reflect noncompetitive pricing between cellophane and its rival products.
Official source
About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.
Ontological neighbourhood