1. Cross Price Elasticity This is your third type and measure of elasticity It measures the responsiveness of the quantity demanded of one good relative to the price of another good; eg, we will analyze how a falling price of fuel affect car sales

2. Cross Price Elasticity Our lovely equation… CPE= Percentage Change in Quantity Demanded of Good X Percentage Change in Price of Good Y QUANTITY OVER PRICE

3. Cross Price Elasticity If there is an inverse relationship between quantity demanded of one good and the price of the other, they are complements If there is a positive relationship between quantity demanded and price, they are substitutes 0 — + Complements Substitutes (at 0 there is no relevant correlation)

4. Cross Price Elasticity Example 1 When the cross-price elasticity of demand is negative, the goods in questions are necessarily…

5. Cross Price Elasticity Example 2 If the prices of pens in a market increases from $1.00 to $1.25 and the quantity of pencils demanded triples, what is the cross price elasticity?

6. Cross Price Elasticity Example 3 When the demand for Cheetos declines by 30%, the quantity of Flamin’ Hot Cheetos demanded goes from 100 million to 50 million. What is the CPE?