Editing Cross elasticity of demand (section)

== Calculation and interpretation ==
Cross elasticity of demand of '''product B with respect to product A (''η''<sub>BA</sub>)''':

: <math>\eta_{BA}=\frac{\Delta Q_B/Q_B}{\Delta P_A/P_A} = \frac{P_A}{Q_B} \cdot \frac{\Delta Q_B}{\Delta P_A}</math>

<math>\eta_{BA}>0</math> implies two goods are '''substitutes'''. Consumers purchase more B when the price of A increases. Example: the cross elasticity of demand of butter with respect to margarine is 0.81, so 1% increase in the price of margarine will increase the demand for butter by 0.81%.

<math>\eta_{BA}<0</math> implies two goods are '''complements'''. Consumers purchase less B when the price of A increases. Example: the cross elasticity of demand of entertainment with respect to food is −0.72, so 1% increase in the price of food will decrease the demand for entertainment by 0.72%.

<math>\eta_{BA}=0</math> implies two goods are '''independent''' (a price change of good A is '''unrelated''' to demand change of good B), so changes in the price of product A have no effect on the demand for Product B. Example: bread and cloths .
{| class="wikitable"
|+Interpretation of cross elasticity of demand<ref>{{Cite web|title=Lesson Overview – Cross Price Elasticity and Income Elasticity of Demand (article)|url=https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/income-elasticity-of-demand/a/lesson-overview-cross-price-elasticity-and-income-elasticity-of-demand|access-date=2021-04-18|website=Khan Academy|language=en}}</ref>
!If the sign of cross elasticity of demand is...
!the elasticity range 
!the goods are
|-
|negative
|−∞
|perfect complements
|-
|negative 
|{{open-open|−∞，0}}
|highly or somewhat complements
|-
|0
|0
|unrelated goods (neither complements or substitutes)
|-
|positive 
|{{open-open|0, +∞}}
|somewhat or highly substitutes 
|-
|positive 
| +∞
|perfect substitutes
|}

=== Degree of response ===
The '''higher''' the positive cross elasticity of demand, the '''more substitutable''' two products are; thus, the more competition between them. Similarly, the '''lower''' the negative cross elasticity of demand, the '''more complementary''' two goods are. In general, monopolies usually possess a low-positive cross elasticity of demand with respect to their competitors.<ref>{{cite journal |last1=Clark |first1=J. M. |title=Review of Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory. |journal=Political Science Quarterly |date=1940 |volume=55 |issue=1 |pages=127–129 |doi=10.2307/2143778 |url=https://www.jstor.org/stable/2143778 |access-date=7 June 2024 |issn=0032-3195|url-access=subscription }}</ref><ref>{{cite journal |last1=Surányi-Unger |first1=Theo |title=The Concept of Elasticity in Economics |journal=Weltwirtschaftliches Archiv |date=1949 |volume=62 |pages=11–27 |url=https://www.jstor.org/stable/40432297 |access-date=7 June 2024 |issn=0043-2636}}</ref><ref>{{cite journal |title= G. J. Stigler ''The Theory of Price''. New York, Macmillan, 1952, VII p. 340 P|journal= Bulletin de l'Institut de Recherches Économiques et Sociales|date=1953 |volume=19 |issue=1 |pages=97 |doi=10.1017/S1373971900100782}}</ref>

==== Elastic demand ====
If the absolute value of the cross elasticity of demand is greater than 1, the cross elasticity of demand is '''elastic''', this means that a change in price of good A results in a '''more than proportionate''' change in quantity demanded for good B. In other words, a change in price of good A has a ''relatively'' high impact on the change in quantity demanded for good B.
<math display="block">|XED|>1</math>
==== Inelastic demand ====
If the absolute value of the cross elasticity of demand between 1 and 0, the cross elasticity of demand is '''inelastic''', this means that a change in price of good A results in a '''less than proportionate''' change in quantity demanded for good B. In other words, a change in price of good A has a ''relatively'' small impact on the change in quantity demanded for good B.
<math display="block">0<|XED|<1</math>

==== Unitary demand ====
If the value of the cross elasticity of demand is 1, the cross elasticity of demand is '''unitary''', this means that a change in price of good A results in an exactly '''proportionate''' change in quantity demanded for good B.
<math display="block">XED=1</math>