The Cross Elasticity of Demand Calculator is a handy tool used in economics to measure how sensitive the demand for one product is to a change in the price of another product. It provides insight into the relationship between two goods and helps businesses and economists understand consumer behavior better.
Formula of Cross Elasticity of Demand Calculator
The formula for calculating cross-price elasticity of demand is:
Cross-price elasticity of demand = (% Change in Quantity Demanded of Good A) / (% Change in Price of Good B)
Here’s a breakdown of the variables:
- % Change in Quantity Demanded of Good A: This is the percentage change in the quantity demanded of good A (the good whose demand you’re measuring) after the price of good B changes.
- % Change in Price of Good B: This is the percentage change in the price of good B (the good whose price change you’re observing).
General Terms Table
| Term | Description |
|---|---|
| Elastic Demand | When the quantity demanded of a good changes significantly in response to a change in price. |
| Inelastic Demand | When the quantity demanded of a good changes slightly in response to a change in price. |
| Substitute Goods | Goods that can be used in place of one another. |
| Complementary Goods | Goods that are typically consumed together. |
| Positive Cross Elasticity | When the demand for one good increases as the price of another good increases. |
| Negative Cross Elasticity | When the demand for one good decreases as the price of another good increases. |
Example of Cross Elasticity of Demand Calculator
Let’s consider an example to understand cross elasticity better. Suppose you own a company that sells umbrellas and raincoats. When the price of umbrellas rises, you notice a decrease in the demand for raincoats. By using the Cross Elasticity of Demand Calculator, you can quantify the extent of this relationship and make informed business decisions.
Most Common FAQs
Cross Elasticity of Demand measures how the quantity demanded of one good changes in response to a change in the price of another good.
Cross Elasticity of Demand is calculate by dividing the percentage change in the quantity demanded of one good by the percentage change in the price of another good.
Positive cross elasticity means that the demand for one good increases when the price of another good increases, indicating that the goods are substitutes. Negative cross elasticity means that the demand for one good decreases when the price of another good increases, indicating that the goods are complements.