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Economics/Interpretation of cross elasticity


I have a question relating to the interpretation of cross elasticity of demand.
Cross elasticities of demand for Pork and Beef:
beef with respect to the price of pork 0.10
pork with respect to the price of pork 0.25
In the example above,
(1) Both are substitutes for each other.
(2) There is little relation between pork and beef because of the small value.

Is it correct?
What more can be commented on the values?
Thank you

Hi Zeen,

Both of your answers are valid subject to certain conditions –spatial and cultural.

Let us get down to the first answer at the outset. The answer is “substitutes,” though not necessarily with the qualification “perfect” or near,” depending upon the market where the two products are demanded and supplied. This has “spatial” and “cultural” overtones.

The “spatial” overtone. In countries like the U.S., Canada, the U.K., or Australia, beef and pork are good substitutes. In some parts of Africa and Asia, they are not very good substitutes because of variations in availability and differences in consumer choice and preference. In some parts pigs are very little available, yet people would prefer beef to pork because of filthy rearing conditions for pigs and the scientifically corroborated snippets about high probability of pork-induced infestation of worms in human guts; in some parts, pork is a great delicacy and pigs are reared and available but beef has to be imported and sell dear and is not considered a substitute for beef.

The “cultural” overtone. This entails the market conditions generated by social and religious ethos. In some religions, pork is an anathema, such as among the Muslims, and beef is an anathema, such as among the Hindus. So in Pakistan, for example, pork simply does not at all count as an edible commodity, no question of passing as a substitute for beef which is a staple commodity there. On the other hand, in India in general (excluding some pockets), cow is considered “holy” and beef is not a commodity, and even pork is also widely treated as not very welcome edible item. Therefore, in countries like Pakistan or India, pork and beef are not deemed substitutes as considered in microeconomic analysis.

Only in markets where pork and beef do not carry any cultural or other implications are beef and pork substitutes, to a smaller or greater extent.

Yes, there is little relation between pork and beef owing to the small value that exerts itself on the edible shelves. The reasons are not far to seek. While pork and beef, when supposed to have no stigma or predilection attached, are considered items of delicious animal protein, they have their competitors in similar items like venison, lamb, etc., and even their aquatic competitors in items like shark fins, tuna, etc.

Yet, when beef and pork are considered in isolation in a market, these two items do have cross elasticities with respect to changes in relative prices. This stems from particular consumer idiosyncrasy as well as from consumer cognition about food values. For example, in the U.S. people may have with almost indifferent preferences beef sandwiches and pork sandwiches when offered at similar prices, and if beef sandwiches become perceptibly dearer, they would switch to pork sandwiches. Beef and pork on such a market turf do show cross elasticities of demand in response to alterations in relative prices.

Your answers are right depending upon the type of market where the two items considered are putatively identified as economic items bereft of any societal demand-tilting overtones. Put in other words, only if we impose strong restrictions about parameters and exogenous variables, then the endogenous varbles -- quantity and price -- will play a major role in ascribing validity to your answers [in econometrics you may call it identification].

As regards the value, when two goods are considered in their entireties, disencumbered of impingement from all other similar or dissimilar products, small values do not detract from the potency of cross elasticity in economic --especially, econometric --analysis.

I hope, Zeen, I have been able to attend to your interesting query. Best of luck.  


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Eklimur Raza


It appears some students in this website are confused about elasticity of demand and the slope of the demand curve when they are trying to figure out why rectangular hyperbola comes up in case of unitary demand curve. First, they don't know that RH can be depicted in a positive quadrant of price,quantity plane. Secondly, they make the mistake that the slope of RH is constant at -1. Two points could help them: first, e=1 at each and every point of the RH, because the tangent at any point shows lower segment=upper segment (another geometric definition of e); yet slopes at different points,dQ/dP, are different; second, e is not slope but [(Slope)(P/Q)]in absolute terms. Caveat: only if we measure (log P) along the horizontal axis and (log Q) up the vertical axis, can we then say slope equals elasticity --in which case RH on P,Q plane is transformed into a straight-line demand curve [with slope= -tan 45 deg] on (log Q),(logP) plane, and e= -d(log Q)/d(log P). [By the way, logs are not used in college textbooks --although that is helpful in econometric estimation of elasticity viewed as an exponent of P, when demand equation is transformed into log-linear form.] I have not found the geometrical explanation I have given in any textbook followed in undergraduate and college classes in Canada (including the book followed in a university where I taught for a short time and in the book followed in George Brown College, Toronto, where I teach.


About 11 years' teaching economics and business studies, and also English, history and elementary French.Practical experience in a development bank, working with international donor agencies like the World Bank and the ADB. Experience in free-lance journalism, including Canada's "National Post."

I teach micro- and macroeconomics at George Brown College (continuing education), Toronto, ON, Canada.

Many articles and editorials, on different subjects, in English newspapers. Recently an applied Major Research Paper, based on a synthesis of the Solow growth model and the Lewis two-sector model, has be accepted by Ryerson University, Toronto. Professors Thomas Barbiero and Eric Cam, Ryerson University, accepted the paper.

Master degree in Interantional Economics and Finance and diploma with honours in Business Administration from Canada.

Awards and Honors
Received First Prize in an inter-university Literary Contest.

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