Cross-Price Elasticity of Demand (CPED)

🌱Planted September 28, 2021.
Last tended May 21, 2022.
budding 🌿
1 minute read ⏱

Cross-Price elasticity looks at consumer demand and the price elasticity across products.

Cross-Price Elasticity of Demand (CPED) differs from Price Elasticity of Demand (PED) because CPED measures the change in demand for a product caused by changes in price for complementary and substitute goods.

The formula for calculating CPED is very similar to the formula for PED. It differs in that the top and bottom of the equation are for separate products. It looks like this: CPED = (% change in Quantity of X demanded) / (% change in Price of Y).

The sign (positive or negative) of a CPEDCPED value provides some useful insights. It can be used to understand the relationship between the two goods and how consumer demand for one impacts demand for the other.

When two goods have a positive CPEDCPED value, it means they are substitute goods (such as beef and pork).

If two goods have a negative CPEDCPED value, they are considered complementary goods (like cake and icing).