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 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:

• \( \%\Delta Q_{demand} \) — Percentage change in quantity demanded of the good
• \( \%\Delta P_{other} \) — Percentage change in price of the other good

Explanation: The formula calculates the ratio of the percentage change in quantity demanded of one good to the percentage change in price of another good.

3. Interpreting CPED Values

Positive CPED: Indicates substitute goods (when price of one goes up, demand for the other increases)
Negative CPED: Indicates complementary goods (when price of one goes up, demand for the other decreases)
Zero CPED: Indicates unrelated goods
Magnitude: Shows the strength of the relationship (higher absolute values mean stronger relationship)

4. Using the Calculator

Tips: Enter initial and new quantity demanded for your product, and initial and new price for the related product. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between CPED and regular price elasticity?
A: Regular price elasticity measures response to own price changes, while CPED measures response to another product's price changes.

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

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

Q4: How can businesses use CPED?
A: For pricing strategies, understanding competition, product positioning, and market analysis.

Q5: What factors affect CPED?
A: Availability of substitutes, degree of necessity, time period considered, and definition of market.