Cross Price Elasticity Calculator Midpoint

Midpoint Formula:

\[ CPED = \frac{(Q_2 - Q_1)/((Q_2 + Q_1)/2)}{(P_2 - P_1)/((P_2 + P_1)/2)} \]

Cross Price Elasticity of Demand (CPED):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Cross Price Elasticity of Demand?

Cross Price Elasticity of Demand (CPED) measures how the quantity demanded of one good responds to a change in the price of another good. It helps determine whether goods are substitutes or complements.

2. How Does the Midpoint Calculator Work?

The calculator uses the midpoint formula:

\[ CPED = \frac{(Q_2 - Q_1)/((Q_2 + Q_1)/2)}{(P_2 - P_1)/((P_2 + P_1)/2)} \]

Where:

\( Q_1 \) — Initial quantity demanded
\( Q_2 \) — New quantity demanded
\( P_1 \) — Initial price of related good
\( P_2 \) — New price of related good

Explanation: The midpoint formula provides more accurate elasticity calculations by using averages of the initial and new values as denominators.

3. Interpreting CPED Results

Positive CPED: Indicates substitute goods (as price of one increases, demand for the other increases).
Negative CPED: Indicates complementary goods (as price of one increases, demand for the other decreases).
Zero CPED: Indicates unrelated goods.

4. Using the Calculator

Tips: Enter all four values (Q1, Q2, P1, P2) as positive numbers. The calculator will handle the percentage changes using the midpoint method.

5. Frequently Asked Questions (FAQ)

Q1: Why use the midpoint formula instead of simple percentage change?
A: The midpoint formula gives the same elasticity value regardless of whether you consider the change from Q1 to Q2 or Q2 to Q1, making it more consistent.

Q2: What's considered a strong relationship between goods?
A: Typically, absolute values above 1 indicate strong relationships, while values between 0 and 1 indicate weak relationships.

Q3: Can CPED be used for any pair of goods?
A: Yes, but it's most meaningful when analyzing goods that are likely to be related (substitutes or complements).

Q4: How does this differ from price elasticity of demand?
A: Price elasticity measures response to own price changes, while cross price elasticity measures response to another good's price changes.

Q5: What are some real-world examples?
A: Substitute example: butter and margarine (positive CPED). Complement example: cars and gasoline (negative CPED).