When Starbucks increased the price of its coffee by 5 percent, Mcdonalds reported a 0.3 percent increase in the demand for its coffee. To get the cross-price elasticity of demand or the relationship between the two products, we use the following formula:
Cross-Price elasticity: formula is
Exy = (percent change in Quantity demanded of X) / (percent change in Price of Y).
Where
X =MCDo Quantity increase =.3%
Y= Srarbucks Price increase = 5%
Exy= .3/5
Exy=.06 or 6%
