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 Cross Price Elasticity formula:

Where:

• \( Q_{x1} \) — Initial quantity of good X
• \( Q_{x2} \) — New quantity of good X
• \( P_{y1} \) — Initial price of good Y
• \( P_{y2} \) — New price of good Y

Explanation: The formula calculates the percentage change in quantity demanded of good X divided by the percentage change in price of good Y.

3. Interpreting the Results

Positive CPED: Indicates substitute goods (as price of Y increases, demand for X increases)
Negative CPED: Indicates complementary goods (as price of Y increases, demand for X decreases)
Zero CPED: Indicates unrelated goods

4. Using the Calculator

Tips: Enter all four values (two quantities and two prices). The calculator will compute the elasticity. Values must be positive and initial quantity/price cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between price elasticity and cross price elasticity?
A: Price elasticity measures response to own price changes, while cross price elasticity measures response to another good's price changes.

Q2: What are some examples of substitute goods?
A: Butter and margarine, tea and coffee, different brands of smartphones.

Q3: What are some examples of complementary goods?
A: Cars and gasoline, printers and ink, smartphones and apps.

Q4: How is this useful for businesses?
A: Helps understand competitive relationships, pricing strategies, and market positioning.

Q5: 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 strong substitutes.