Eda,b (cross-price elasticity coefficient)

Definition

Eda,b, also known as cross-price elasticity coefficient, measures the responsiveness of the quantity demanded for one good (good A) when there is a change in the price of another related good (good B). It helps determine whether two goods are substitutes or complements.

Related terms

Substitutes: Substitutes are goods that can be used in place of each other. When two goods are substitutes, an increase in the price of one will lead to an increase in demand for the other. The cross-price elasticity coefficient (Eda,b) will be positive for substitute goods.

Complements: Complements are goods that are typically consumed together. When two goods are complements, an increase in the price of one will lead to a decrease in demand for both products. The cross-price elasticity coefficient (Eda,b) will be negative for complementary goods.

Elasticity of Supply: Elasticity of supply measures how responsive the quantity supplied is to changes in price. While Eda,b focuses on demand, elasticity of supply is concerned with the responsiveness of producers to changes in price.