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Formulate the Cross Elasticity of demand

Formulate the Cross Elasticity of demand?

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Cross elasticity of demand can be commutated by the given formula:


Cross Elasticity =

Proportionate alteration in Quantity demanded of a Commodity / Proportionate alteration in the Price of Related Commodity

When the cross elasticity is positive then the commodities are said to be substitutes and when cross elasticity is negative so the commodities are compliments. The substitute goods (as Coffee and tea) have positive cross elasticity since the increase in the price of tea may raise the demand of the coffee and the consumer may move from the consumption of coffee to tea.

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