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How is the cross-price elasticity of demand defined?
AThe percentage change in the price of good A divided by the percentage change in the quantity of good B
BThe percentage change in the quantity demanded of a good divided by the percentage change in its own price
CThe percentage change in income divided by the percentage change in the price of good B
DThe percentage change in the quantity demanded of good A divided by the percentage change in the price of good B
Answer & Solution
Correct answer: D. The percentage change in the quantity demanded of good A divided by the percentage change in the price of good B
1. Cross-price elasticity links the price of one good, B, to the quantity demanded of a different good, A.
2. It equals the percentage change in the quantity demanded of good A divided by the percentage change in the price of good B.
3. Reversing which variable is price and which is quantity, as in option A, does not match this definition.
4. Option B instead describes the ordinary own-price elasticity of demand, not a cross-price relationship between two goods.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 5 "Elasticity", section 5.4 | Elasticity in Areas Other Than Price_
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