What is an example of a situation where a cross price elasticity of demand is common?

1 Answer
May 13, 2015

Cross price elasticity of demand is higher when we're referring to two substitute goods.

A good example is beef and pork (consider a developing country, where income is quite lower). If beef prices rise, it is expected that families' income does not follow such augmentation. Thus, they'll need to resort to changing their demand for food a little: with high beef prices, they can swap it for pork, for example, which is usually cheaper.

Thus, an increase in beef prices can be reflected in a increase in the demand for pork. On the other hand, but in the same line of thought, a decrease in beef prices might make it more accessible for even more people and, therefore, make the demand for pork decrease.