Cross Price Elasticity Calculator

The cross price elasticity calculator makes it possible to know the market nature and responsiveness due to price variability.

What is the Cross Price Elasticity of Demand?

“It measures the responsiveness in the quantity demanded of one good when the price for another good changes in the marketplace.”

The cross price elasticity of demand is known as the cross-price elasticity of demand.

Why Measure the CPED?

Economists also use the CPED to know the sensitivity of demand for a product to the price of another product. It determines the relationship between the quantity demanded of a good when its price changes relative to another product or a good.

CPED comparatively provides a simple matrix and an effective way to measure the performance of a product or service. This is the main reason brands use the cross elasticity of demand calculator to standardize the performance and productivity of a brand.

Price is one of the prime variables and the cross price elasticity of the demand calculator identifies its effect on the demand of a certain product or a service.

The Cross Price Elasticity of Demand Formula (CPED):

The cross price elasticity formula follows:

\begin{align*}CPED &= \frac{\left( Q_n - Q_i \right) }{ \left( Q_n + Q_i \right) }

\cdot \frac{2}{ \frac{\left( P_n - P_i \right) }{ \left( P_n + P_i \right) }

\cdot 2} \\&= \frac{Q_n - Q_i}{Q_n + Q_i}

\cdot \frac{P_n + P_i}{P_n - P_i}

\end{align*}

Where:

Qi = Initial quantity 

Qn = New quantity 

Pi = Initial price 

Pn = New price 

The cross price elasticity calculator predicts the future effect of inflation on the demand for certain products or services.

Types of Products in the Marketplace:

There are three types of the good nature relative to the CPED matrix:

Substitute Goods:

The cross elasticity of demand remains positive, which means prices increase when demand for one good rises.

Complementary Goods

Demand for complementary goods drops when the price rises for another good. This is called the negative cross-elasticity of demand

Unrelated Goods:

Unrelated products do not affect one another. For instance, an increase in the price of eggs does not directly relate to an increase in demand for olives.

How to Calculate Cross Price Elasticity?

Let's suppose the initial price of a product is $2000 and the final price of a product is $40000. On the other hand, the initial quantity is 35000 units of products and the final quantity is 50000 units. Then how to find cross price elasticity for the product according to the MidPoint Method of elasticity.

Given:

Qi =  35000 units

Qn = 50000 units

Pi = $ 2000

Pn =$ 40000

CPED =?

Solution: 

The cross elasticity of demand formula is:

\begin{align*} CPED &= \frac{\left( Q_n - Q_i \right)}{\left( Q_n + Q_i \right)} \end{align*}

\cdot \frac{2}{ \frac{\left( P_n - P_i \right) }{ \left( P_n + P_i \right)}\

\cdot 2} \\&= \frac{Q_n - Q_i}{Q_n + Q_i}

\cdot \frac{P_n + P_i}{P_n - P_i}\end{align*}

\(\dfrac{{\left( 500{,}000 - 350{,}000 \right)}}{{\left( 500{,}000 + 350{,}000 \right)}}\)

\(\cdot \dfrac{2}{{\dfrac{{\left( 40{,}000 - 20{,}000 \right)}}{{\left( 40{,}000 + 20{,}000 \right)}} \cdot 2}}\)

\(\dfrac{{150{,}000}}{{850{,}000}}

\cdot \dfrac{2}{{\dfrac{{20{,}000}}{{60{,}000}} \cdot 2}}\)

\(\dfrac{{0.17647058823529}}{{0.33333333333333}}

\cdot \dfrac{2}{{0.33333333333333}}\)

\(\dfrac{{0.088235294117647}}{{0.16666666666667}}\)

Type of Elasticity = Inelastic Demand

The cross price elasticity formula calculator is available to CPED values and justifies the price as elastic or inelastic in nature.  

Types of Price Elasticity of Demand Table:

The Price Elasticity of the Demand table is given below:

Working of Cross Elasticity of Demand Calculator:

The cross price elasticity calculator makes your calculations done in seconds without any human intervention.

Let’s learn how!

Input:

• Choose the CPED method 
• Enter the initial and final price 
• Enter the initial and final quantity
• Tab calculate

Output:

• Price Elasticity of Demand
• Type of Elasticity

FAQs:

What Makes a Product Elastic?

If a price change for a product causes a substantial change in either its supply or its demand, it is considered elastic. The cross-price elasticity of demand calculator finds that there are acceptable substitutes for the product. Examples would be cookies, luxury automobiles, and coffee.

What Makes a Product Inelastic?

If a price change for a product doesn’t lead to much, if any, change in its supply or demand, it is considered inelastic. Generally, it means that the product is considered to be a necessity or a luxury item for addictive constituents. Examples would be gasoline, milk, and iPhones.

How Does the Cross Elasticity of Demand Differ From Demand Elasticity?

Cross elasticity looks at the proportional changes in demand among two goods while using the cross-price elasticity of demand calculator. Demand elasticity (or price elasticity of demand) by itself looks at the change in demand of a single item as its price changes.

How Does the Cross Elasticity of Demand Differ From the Cross Elasticity of Supply?

In contrast to changes in demand for two goods in response to prices, the cross elasticity of supply measures the proportional change in the quantity supplied or produced in relation to changes in the price of a good.

References:

From the source of Investopedia: Cross Price Elasticity

From the source of Wikipedia: Cross elasticity of demand