Cross elasticity of demand measures the
A) percentage change in the price of one good when the price of a complement increases by 1 percent.
B) dependence of the quantity demanded of one commodity on the quantity demanded of another.
C) dependence of the quantity demanded of one commodity on changes in the prices of that commodity.
D) sensitivity of the quantity demanded of one commodity to changes in the price of another.
E) relative importance of the price elasticity of demand to the income elasticity of demand.

Question

Quizplus · Accepted Answer

Cross elasticity of demand measures the responsiveness of the demand of one good to changes in the price of another good. It shows how sensitive the quantity demanded of one commodity is to changes in the price of another commodity. Therefore, option D is the correct answer. Option A is incorrect because it talks about the price of a complement, which is not related to cross elasticity of demand. Option B is incorrect because it talks about the dependence of quantity demanded on another good, but not specifically related to price changes. Option C is incorrect because it talks about the dependence of quantity demanded on changes in the prices of the same commodity, not related to cross elasticity of demand. Option E is incorrect because it talks about the relative importance of different types of elasticities, but not specifically related to cross elasticity of demand.

Cross Elasticity of Demand Measures the