As we learned before, many things other than the price of the good in question can affect the desired quantity demanded. Among these is the price of some other related good or service.

   We separated related goods and services into two distinct categories in the section on Demand&Supply; substitutes and complements. We learned that demand shifts or changes when the price of one of these types of goods changes, leading to a change in desired quantity demanded at every price.

   We would like to know not just the direction of change but the size of the change in demand that is brought about by a change in the price of a related good. This is the purpose of the cross-price elasticity of demand.

Copyright © 1995-2004, Inc. - All Rights Reserved