Cross-price elasticity of demand measures how the quantity demanded of one good responds to what change?

• A. A change in the price of a related good
• B. A change in the good's own price
• C. A change in consumers' income
• D. A change in production technology that shifts supply

Answer: (A)

Verified step by step guidance

1. Understand that cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good when there is a change in the price of another related good.
2. Recall the formula for cross-price elasticity of demand: \[ E_{xy} = \frac{\% \text{ change in quantity demanded of good } x}{\% \text{ change in price of good } y} \] where good x and good y are different goods.
3. Recognize that this elasticity captures the relationship between two goods, which can be substitutes or complements, depending on whether the elasticity is positive or negative.
4. Note that changes in the good's own price relate to own-price elasticity of demand, changes in consumers' income relate to income elasticity of demand, and changes in production technology affect supply, not demand directly.
5. Therefore, cross-price elasticity specifically measures how the quantity demanded of one good responds to a change in the price of a related good.