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Cross elasticity of demand (Ec) measures:
AProportionate change in supply of one good against price of another
BProportionate change in own demand against own price
CProportionate change in own demand against income
DProportionate change in demand for one commodity divided by proportionate change in price of another commodity
Answer & Solution
Correct answer: D. Proportionate change in demand for one commodity divided by proportionate change in price of another commodity
1. Cross elasticity: Ec = (proportionate Δ in demand for good x) / (proportionate Δ in price of good y).
2. It captures the effect of one good's price on another good's demand.
3. Positive Ec → substitutes; negative Ec → complements.
_Source: ICMAI BoS CMA Foundation Paper 4 (Business Economics & Management), Module 1 §1.3 (Theory of Demand) + §Elasticity of Demand, p. 33-46_
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