The Cross Elasticity of Demand is a quantification of the responsiveness in the quantity demanded of one good when the price for another good changes. The concept of cross elasticity has many implications in economics and business. In short, the responsiveness in the quantity demanded of one good when the price for another good changes can be quantified. The concept is easily understandable when applied to consumer behavior.

The formula to calculate marketplace elasticity of demand is:-

                                               PE=dQ/dP

where PE is change in quantity demanded; dQ is change in income; and dP is change in price. For instance, if income goes up, people will have more money to spend on goods and services. Consequently, their demand for goods and services will increase. Likewise, if income decreases, people will have less money to spend on goods and services. Consequently, their demand for goods and services will decrease. From this example, it can be seen that marketplace elasticity of demand depends on how responsive income is to changes in prices.

Both marketplace and cross elasticity show how the demand curve changes when one factor — such as income — changes. As shown previously in marketplace elasticity , higher incomes increase total spending while lowering prices decreases spending. Likewise, as shown previously with cross elasticity , lower prices increase spending while higher incomes decrease spending at a particular outlet or point on the demand curve . Although both concepts clarify how economic behavior takes place under certain conditions — they present two different ways to look at this same information so that both can be applied practically by businesses and economists alike.