Cross Elasticity of Demand ( XED)

Cross Elasticity of Demand measures the responsiveness of demand of a commodity (Good x) to a change in the price of another commodity (Good y).

  • Substitute goods have a positive cross elasticity of demand. The numerical figure for cross elasticity of demand will have a positive sign.

For example, two brands of marmalade which are close substitutes for each other. If the price of marmalade brand X is increased(+), the demand for marmalade brand X will be reduced(-) as some consumers will switch to marmalade brand Y (Substitute good). The demand for the substitute is increased.

Hypothetical Example

Netflix has recently announced a price increase for Irish subscribers.

Smartphone price cross elasticity of demand
Cross elasticity of demand

in January 2019, Netflix, the online streaming platform increased it’s prices from $13.99 per month to $15.99 per month. During the course of the next three months, Amazon Prime membership figures grew by 2.5%.

Calculate the cross elasticity of demand for for the Amazon Prime service following a change in price of the Netflix streaming service?

Cross elasticity of demand
Cross elasticity of demand


XED = % Change in Quantity demanded of X/Percentage change in Y

% Change in price = +2/13.99 *100 = +14.3%

XED = +2.5/+14.43 = 0.17

  • The figure of +0.17 shows a low cross positive price elasticity of demand indicating that the two products/services are weak substitutes.
  • There may be strong brand loyalty towards the Netflix’ s streaming service. It would indicate that the company excels in customer loyalty and retention with it’s high subscriber rate.

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