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Cross Price Elasticity of Demand Calculator

LAST UPDATE: August 29th, 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

% Change in Demand of Good #1 = (Demand of Good #1 End – Demand of Good #1 Start) / Demand of Good #1 Start

% Change in Price of Good #2 = (Price of Good #2 End – Price of Good #2 Start) / Price of Good #2 Start

Example

Demand for Good #1 starts at 1,000 units and ends at 2,000 units. Price of Good #2 starts at $20 and ends at $30.

% Change in Demand of Good #1 = (2,000 – 1,000) / 1,000 = 1,000 / 1,000 = 1

% Change in Price of Good #2 = ($30  – $20) / $30 = $10 / $30 = 0.333

Cross Price Elasticity of Demand = 1 / 0.333 = 3.00

Therefore, Cross Price Elasticity of Demand is 3.00.

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