ph16
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Cross-price elasticity of demand , [exy]<br />
[substitutes]<br />
The cross elasticity of the demand for beef with respect to the<br />
price of pork, ebeef-pork or ebp can be calculated:<br />
+ DQb<br />
%D Q of beef<br />
+ebp ebp =<br />
positive %DP of pork<br />
+ DPp<br />
cross elasticity is positive<br />
+ebp ebp =<br />
positive<br />
%D-Q DQb of beef<br />
%DP of pork<br />
- DPp<br />
An increase in the price of pork,<br />
“causes” an increase in the demand<br />
for beef.<br />
A decrease in the price of pork,<br />
“causes” a decrease in the demand<br />
for beef.<br />
If goods are substitutes, exy will be positive. The greater the<br />
coefficient, the more likely they are good substitutes.<br />
Fall '97 www.elearnuganda.net Slide 39
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