The cross elasticity of demand
A) means that an increase in the demand for one good leads to a decrease in demand for another good.
B) measures how a change in the price of one good impacts the demand for another good.
C) measures how a change in supply impacts the demand for the good.
D) means that an increase in the price of one good leads to an increase in the price of another good.
E) measures how a change in income impacts the demand for the good.

Question

Quizplus · Accepted Answer

The cross elasticity of demand measures how a change in the price of one good impacts the demand for another good. It shows the relationship between two goods and helps businesses determine whether they are substitutes or complements. If the cross elasticity is positive, the two goods are substitutes (i.e. an increase in the price of one leads to an increase in demand for the other) and if it is negative, the two goods are complements (i.e. an increase in the price of one leads to a decrease in demand for the other).

The Cross Elasticity of Demand