Economics • Economic BasicsMedium
Which of the following best defines 'Cross-Price Elasticity of Demand'?
A. The percentage change in quantity demanded of one good divided by the percentage change in the price of another good.✓ Correct Answer
B. The responsiveness of consumer income to changes in general price levels.
C. The ratio of total revenue to total cost when prices fluctuate.
D. The sensitivity of supply to changes in consumer preferences.
💡 Solution & Explanation
Cross-price elasticity of demand measures the percentage change in the quantity demanded of one good resulting from a percentage change in the price of another related good. Other choices incorrectly define income sensitivity or supply responses unrelated to cross-price dynamics. A positive cross-elasticity indicates substitute goods, whereas a negative value indicates complementary goods. A related economic concept is income elasticity of demand, which measures responsiveness to changes in consumer income.
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