Question

Differentiate between price elasticity of demand and cross elasticity of demand.

Answer 1

Price elasticity of demand	Cross elasticity of demand
1. A measure that shows the proportion (extent) to which demand changes with respect to e in price is called price elasticity of demand.	1. When the demand of the concerned commodity changes in response to the change in price of its related good (either substitute or complementary good), then the extent of such change in demand is called cross elasticity or cross price elasticity of demand.
2. Price elasticity of demand =  Proportionate change in demand  Proportionate change in price	2. Cross elasticity of demand =  Percentage change in demand for good X Percentage change in price for good Y
3. Price elasticity is useful in measuring responsiveness of demand.	3. The cross price elasticity of demand is useful in measuring the change in demand for one good in response to a change in price of another good.
4. Price elasticity of demand can be negative but it is always represented as positive for simplicity.	4. The cross price elasticity may be a positive value or negative value, depending on whether the goods are complementary or substitutes.