The percentage change in the quantity demanded of one product relative to the percentage change in price of another product is called?

• A. Income effect
• B. Price elasticity of demand
• C. Cross-price elasticity
• D. Substitution effect

Answer: (C)

Cross-price elasticity of demand measures how the quantity demanded of one product changes in response to a change in the price of another product. It’s calculated as the percentage change in the quantity of the first good divided by the percentage change in the price of the second good. A positive value means the goods are substitutes (raising the price of one boosts demand for the other), a negative value means they are complements (raising the price of one lowers demand for the other), and a near-zero value means the goods are independent. This distinguishes it from own-price elasticity, which looks at how a good’s own quantity responds to its own price, and from the income and substitution effects, which relate to how overall consumption changes with price changes of a single good.