1. What is Cross Price Elasticity?

Cross Price Elasticity of Demand (XED) measures the responsiveness of the quantity demanded for one good (X) to a change in the price of another good (Y). It helps determine whether goods are substitutes, complements, or unrelated.

2. How Does the Calculator Work?

The calculator uses the Cross Price Elasticity formula:

Where:

• \( \%\Delta Q_x \) — Percentage change in quantity demanded of good X
• \( \%\Delta P_y \) — Percentage change in price of good Y
• \( XED \) — Cross Price Elasticity (unitless)

Interpretation:

• XED > 0: Goods are substitutes (price increase of Y increases demand for X)
• XED < 0: Goods are complements (price increase of Y decreases demand for X)
• XED = 0: Goods are unrelated

3. Importance of Cross Price Elasticity

Details: Cross Price Elasticity is crucial for businesses in pricing strategy, market analysis, and understanding competitive relationships between products. It helps identify substitute and complementary goods in the market.

4. Using the Calculator

Tips: Enter the percentage change in quantity demanded of good X and percentage change in price of good Y. Both values should be entered as percentages (e.g., 10 for 10%).

5. Frequently Asked Questions (FAQ)

Q1: What does a high positive XED value indicate?
A: A high positive value indicates strong substitute goods - consumers readily switch from good Y to good X when prices change.

Q2: What does a negative XED value mean?
A: A negative value indicates complementary goods - when the price of one increases, demand for both decreases as they are typically used together.

Q3: How is percentage change calculated?
A: Percentage change = [(New Value - Old Value) / Old Value] × 100%. The calculator requires you to input this calculated percentage.

Q4: What are some real-world examples of substitute goods?
A: Butter and margarine, coffee and tea, different brands of smartphones - price increase in one leads to increased demand for the other.

Q5: What are some examples of complementary goods?
A: Printers and ink cartridges, smartphones and apps, cars and gasoline - price increase in one reduces demand for both.