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Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.

If two goods can be substituted for one another, consumers will usually buy one when the price of another increases.

For example, if the price of butter increases and everything else stays the same, the demand for margarine is likely to grow as consumers try a substitute.

Calculate the cross elasticity of demand by taking the percentage of change in the quantity demanded of one good and dividing it by the percentage of change in price of a substitute.

Positive cross elasticity means that if the price of one good goes up, demand for another does, too. The butter and margarine example illustrates this concept.

With negative cross elasticity, an increase in the price of one good causes a drop in the demand for another. Complementary products demonstrate this concept. If the price of coffee increases and everything else stays the same, the quantity demanded for stir sticks will drop, too.

If the calculation yields a small value, then the two goods have little relation. Cross elasticity of demand really only applies in situations where the two products or services are related in some way. For instance, an increase in the price of shoes is likely to have little bearing on the demand for plastic cups.

## In This Series

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### How Demand Changes With a Variation in Price

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### Price Elasticity Of Demand

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### Calculating Income Elasticity of Demand

Income elasticity of demand is a measure of how consumer demand changes when income changes.
4. Insights

### What Is Elasticity?

Elasticity measures the relationship between a good and its price based on consumer demand, consumer income, and its available supply. Learn the basics about it here.
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### Product Demand Elasticity

Demand elasticity is the ultimate measure of how consumer shopping patterns will change with economic conditions.
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### Explaining Quantity Demanded

Quantity demanded describes the total amount of goods or services that consumers demand at any given point in time.
7. Investing

### What's a Substitute?

A substitute is a good that satisfies the same needs as another.
8. Insights

### What is a Normal Good?

A normal good is any good or service that sees an increase in demand due to an increase in income.
9. Insights

### What Does Inelastic Mean?

The supply and demand for an inelastic good or service is not drastically affected when its price changes.
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