Q.As the price of a commodity increases from Rs. 50 to Rs. 80, the quantity demanded falls from 250 kg to 200 kg. Determine the price elasticity of demand of the commodity. Or What is meant by cross-price elasticity of demand?

Price elasticity of demand = (% change in quantity demanded) / (% change in price) = 20% / 60% = 1/3 ≈ 0.33 — demand is inelastic. The Or-alternative, cross-price elasticity, measures how the quantity demanded of one good changes when the price of a RELATED good changes.

Main question — numerical:

Price Elasticity of Demand (Ed) = (% change in quantity demanded) / (% change in price)

Ed = (−20%) / (60%) = −1/3

Ignoring the negative sign (which simply reflects the normal inverse price-quantity relationship), the numerical value of elasticity is:

|Ed| = 1/3 ≈ 0.33

Since this value is less than 1, demand for this commodity is inelastic — a 60% rise in price caused proportionately less than a 60% fall in quantity demanded (only 20%), meaning buyers did not cut back their purchases very sharply in response to the price rise. This is typical of necessities or goods with few close substitutes.

Or alternative — cross-price elasticity of demand: This measures the responsiveness of the quantity demanded of one good (say, good X) to a change in the price of a RELATED good (good Y), holding the price of X itself constant:

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