Cross price elasticity calculator helps you determine how the price change of one product affects how much people buy another. This tool helps you understand how two products are connected in terms of demand. It's useful for businesses, economists, and policymakers to figure out how these products affect each other in the market.
Cross-price elasticity of demand evaluates how the quantity demanded of one product changes in response to a change in the price of another product.
The cross-price elasticity of demand measures how sensitive the demand for one good (good B) is to changes in the price of another good (good A). In simpler terms, it tells you how much the quantity demanded of good B will change when the price of good A goes up or down.
To calculate the cross-price elasticity of demand, you can use the formula below, which is:
\text{Elasticity} = \frac{\text{Price}_{1A} + \text{Price}_{2A}}{\text{Quantity}_{1B} + \text{Quantity}_{2B}} \times \frac{\Delta\text{Quantity}_{B}}{\Delta\text{Price}_{A}}
Where,
You can calculate this value using the formula we discussed above. Now let’s go through the example below, this will help you learn how to calculate cross price elasticity of demand by yourself.
Consider an example involving coffee (product A) and tea (product B).
Now, let's add these values to the cross-price elasticity formula:
\(\text{Elasticity} = \frac{(4 + 5)}{(200 + 180)} \times \frac{-20}{1}\)
Solve the calculation step by step:
\(\text{Elasticity} = \frac{9}{380} \times -20\)
\(\text{Elasticity} \approx -0.4737\)
The calculated cross price elasticity is approximately -0.4737. The negative value suggests that coffee and tea are complements, when the price of coffee increases, the quantity demanded for tea decreases, indicating a complementary relationship between these two goods.
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