Skip to main content

Cross elasticity of demand (XED)


\\\file server\TripleA\Design\icons\small\key_terms.gif

Cross elasticity of demand

The cross elasticity is a measure of the sensitivity of the demand for one product to changes in the price of another.


Cross price elasticity varies from zero to infinity. As before, the now familiar descriptions are used:

Value Description
0 Perfectly inelastic
Under 1 Inelastic
1 Unitary
Over 1 Elastic
Infinity Perfectly elastic

Significance of XED sign

The sign is as important as the numerical value, however.

Some products tend to be bought together, others are purchased in competition to each other.

  • Products which are in joint demand are called complementary goods.
  • Products which are in competitive demand because customers see them as interchangeable, are called substitute goods.


Examples of complements are strawberries and cream, fish and chips, cars and petrol, printers and printer ink. Complementary goods have negative cross price elasticities. Perfect complements will have a cross price elasticity of infinity.

Example - complements


Examples of substitutes are beef and lamb, gas and heating oil, petrol and diesel fuel. (Note that the substitution may not be possible at once). Substitutes have positive cross price elasticities.

Example - substitutes

Cross price elasticity can change with time.