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What measures how the quantity demanded of one good responds to a change in the price of another good?

Rationale

Cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good.

This concept quantifies the relationship between the price change of one good and the resultant change in the quantity demanded of a different good, indicating whether they are substitutes or complements in consumption.

A (Equilibrium elasticity of demand) YOUR ANSWER

Equilibrium elasticity of demand is not a standard economic term and does not specifically measure the responsiveness of demand for one good in relation to the price of another. It typically refers to the elasticity at market equilibrium, which does not directly address the interaction between two different goods.

B (Quantity elasticity of demand) YOUR ANSWER

Quantity elasticity of demand is also not a recognized term in economics. Generally, elasticity refers to price elasticity of demand, which measures how the quantity demanded of a good responds to changes in its own price, not the price of another good.

C (Price elasticity of demand) YOUR ANSWER

Price elasticity of demand evaluates how the quantity demanded of a particular good changes in response to its own price change, not the price of another good. This measure is crucial for understanding consumer behavior but does not address cross-price effects.

D (Cross-price elasticity of demand) CORRECT

Cross-price elasticity of demand accurately defines the relationship between changes in the price of one good and the quantity demanded of another good. A positive value indicates that the goods are substitutes, while a negative value suggests they are complements, making this the correct measure for the question posed.

Conclusion

Cross-price elasticity of demand is essential for analyzing the interdependence between goods in a market. By measuring how the demand for one product changes in response to the price fluctuation of another, it provides valuable insights into consumer preferences and market dynamics, distinguishing it from other forms of elasticity that focus solely on individual goods.

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