Enter the price of product A at two different time points and the demand for product B at those same time points into the cross-price elasticity calculator. The calculator will display the CPE.
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Cross Price Elasticity Formula
The following formulas can be used to calculate the price elasticity across two different products.
CPE = (PA1+ PA2) / (QB1 + QB2) * (QB2-QB1)/ (PA2-PA1)
- Where CPE is the cross-price elasticity
- PA1 is the price of product A at time point 1
- PA2 is the price of product A at time point 2
- QB1 is the quantity of product B at time point 1
- QB2 is the quantity of product B at time point 2
Cross Price Elasticity Definition
A cross-price elasticity is a measure of the response between price and demand of a product or service.
How to calculate cross price elasticity?
How to calculate cross price elasticity
- First, find the price of A and demand of B at time point 1
This will be the total price of product A and the total demand in the quantity of product B at the starting time point.
- Next, find the price of A and demand of B at time point 2
Just as done in step 1, find the price of A and demand of B at the ending time point.
- Calculate CPE
Calculate the elasticity using the formula above and the price and demand from steps 1 and 2.
Cross price elasticity measures the effect changing in the price of one product, for example, product A has on the overall demand of another product B. An example of this is if you increase the price of Doritos in a convenience store, the demand for a similar generic chip may increase due to people not wanted to spend the extra money.