Price Elasticity of Demand vs Cross-Price Elasticity of Demand
Price Elasticity of Demand and Cross-Price Elasticity of Demand are two Elasticity concepts in AP Economics that students often mix up. In short: price elasticity of demand is price elasticity of demand measures how responsive quantity demanded is to a change in the good's price. Meanwhile, cross-price elasticity of demand is cross-price elasticity of demand measures how responsive the quantity demanded of one good is to a change in the price of another good. Here is how they compare side by side.
Price elasticity of demand measures how responsive quantity demanded is to a change in the good's price.
It is the percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when the absolute value is greater than 1 and inelastic when it is less than 1. Goods with many substitutes, that take a large share of income, or judged over a longer time horizon tend to be more elastic.
Cross-price elasticity of demand measures how responsive the quantity demanded of one good is to a change in the price of another good.
It is calculated as the percentage change in quantity demanded of Good A divided by the percentage change in price of Good B. If the ratio is positive, the goods are considered substitutes. If the ratio is negative, the goods are considered complements.
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