Distinguish between price elasticity of demand and cross elasticity of demand
Answers
The proportionate (percentage) change in quantity demanded of a product due to proportionate (percentage) change in its price is measured by the price elasticity of demand.
The coefficient of Price Elasticity of demand is always negative due to inverse relation between price and quantities demanded (Though it is stated as a positive number).
The coefficient of price elasticity shows different degrees of price elasticity like elastic, inelastic and unitary demand.
The formula for price elasticity of demand is:
% change in quantity demanded
% change in price
The proportionate change in quantity demanded of a commodity due to change in price of another commodity (like the substitute or the complementary good) is called as cross elasticity of demand.
The positive coefficient of cross elasticity shows that the given commodities are substitutes. Negative cross elasticity shows that the given commodities are complementary to each other. And when it is zero, then the given commodities are unrelated to each other.