Change in price of one product will change the demand of other products.

Change in price of one product will change the demand of other products Yes I am talking about cross price elasticity of demand. First let us know what is elasticity. Elasticity? An elasticity is a measure of the sensitivity of one variable to another. Percent change that will occur in one variable in response to a percent change in another variable. PRICE ELASTICITY OF DEMAND (PED) The variation in demand in response to a variation in price is called the price elasticity of demand PED % CHANGE IN DEMAND TO % CHANGE IN PRICE OF A PARTICULAR COMMODITY PED=(DQ/DP)(Q/P) CROSS PRICE ELASTICITY OF DEMAND(CPED):- It is measured as the % change in quantity demand for the first good that occurs in response to %change in price of second good. If CPED is negative we call them as complimetaries. If CPED is positive we call them as substitutes. For example: Coffee and tea are substitute goods, i.e. they are used in the place of each other. An increase or a decrease in the price of coffee will lead to an increase or a decrease in the demand for tea respectively.