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Cross Price Elasticity of Demand Calculator

LAST UPDATE: June 20th, 2018

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What is cross-price elasticity of demand?

Cross-price elasticity of demand (CPEoD) is a measurement of how much a price change of one item will affect the demand of another item.

CPEoD is typically used for competitive products (if brand B reduces their price, demand for a brand A usually goes down) and complementary products (if the price of hamburgers goes down and people buy more hamburgers, they also buy more ketchup).

A CPEoD of more than 1 is considered to be very elastic. If the price of good #2 changes a little, it will affect the demand of good #1 a lot.

A CPEoD of 1 is considered unitary. If the price of good #2 changes 10%, it will affect the demand of good #1 by 10% as well.

A negative CPEoD means that if the price of good #2 falls, demand for good #1 will also fall.

Formula

Cross Price Elasticity of Demand = % Change in Demand of Good #1 / % Change in Price of Good #2

\text{Elasticity} = \frac{\frac{\text{D2 Good #1 - D1 Good #1}}{\text{D1 Good #1}}}{\frac{\text{P2 Good #2 - P1 Good #2}}{\text{P1 Good #2}}}

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