Last updated on June 13th, 2020 at 08:31 pm

**Cross elasticity of demand occurs when a change in price of a commodity brings the change in demand of another commodity. The cross elasticity of demand for two goods X and Y, is the ratio of the percentage change of quantity purchased of X to the percentage change in price of Y.**

__Cross Elasticity of Demand :__ Cross elasticity of demand occurs for two goods which are interrelated, such as complementary goods, substitutable goods, etc. …

Here,

*e*= cross elasticity of demand_{c} Δ

*Q*_{x}_{ }= change in quantity of X ΔP

*= change in price of Y*_{y}*Q*= initial quantity of X

_{x}*P*= initial price of Y

_{y}**For example we are taking two complementary goods. The price of the Y commodity is changing from $100 to $150. For this change, the quantity purchased of X is changing to 1000 units from 3000 units. Thus,**

__Example :__*P*= $100

_{y}*Q*= 3000 units

_{x} ΔP

*= $50 Δ*_{y}*Q*= 2000 units_{x}The cross elasticity of demand,

Thus, the cross elasticity is of demand is approximately 1.3

For substitutable goods, a rise in the price of Y will bring a rise in the demand of X and vice versa. The cross elasticity of complementary goods are positive and that of substitutable goods are negative.