1. What is Cross Price Elasticity?

Cross Price Elasticity of Demand (CPED) measures how the quantity demanded of one good (X) responds to a change in the price of another good (Y). It shows the relationship between two products - whether they are substitutes, complements, or unrelated.

2. How Does the Calculator Work?

The calculator uses the CPED formula:

Where:

• \( \Delta Q_x \) — Change in quantity demanded of good X
• \( Q_x \) — Original quantity demanded of good X
• \( \Delta P_y \) — Change in price of good Y
• \( P_y \) — Original price of good Y

Explanation: CPED measures the percentage change in quantity demanded of X divided by the percentage change in price of Y.

3. Interpreting CPED Values

Positive CPED: The goods are substitutes (e.g., tea and coffee)
Negative CPED: The goods are complements (e.g., cars and gasoline)
Zero CPED: The goods are unrelated

4. Using the Calculator

Tips: Enter all values in consistent units. Quantity changes can be positive or negative. Price and quantity values must be non-zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a CPED of 1.5 mean?
A: A 1% increase in price of Y leads to a 1.5% increase in demand for X, indicating they are substitutes.

Q2: How is CPED different from price elasticity?
A: Price elasticity measures response to own price changes, while CPED measures response to another good's price changes.

Q3: What time period should be used?
A: Use consistent time periods for all measurements (e.g., monthly or quarterly data).

Q4: Can CPED be used for services?
A: Yes, it applies to both goods and services when measuring their demand relationship.

Q5: What are limitations of CPED?
A: It assumes ceteris paribus (all else equal) and may vary at different price/quantity points.