The Cross Price Elastic Demand measures how the quantity demanded of one good responds to a change in the price of another good. It is calculated as the percentage change in quantity demanded of good 1 divided by the percentage change in the price of good 2. Whether the cross price elastic demand is a Positive or negative number depends on whether the two goods are substitutes or complements.
Basically there are two cross price elastic demand:-
1) Positive CPED - The Graph shows Positive CPED when the goods are substitute of each other then Cross price elastic demand is positive. For an example an increase in hot dog prices induces people to grill hamburgers instead because the price of hot dogs and the quantity of hamburgers demanded move in the same direction. Or an increase in price of tea, demand of coffee will increase.
2) Negative CPED - Cross elastic price quantity is negative in case of complementary goods. A proportionate increase in the price of one commodity leads to fall in the demand of anothers commodity because both are demanded jointly. For an example increase in the price of computers reduces the quantity of software demanded.
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