If Starbucks raises its price by 5 percent and mcdonalds experiences a 0.3 percent increase in demand fir its coffee, what is the cross-price elasticity of demand?

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%