Cross price elasticity of demand

Cross price elasticity of demand

Defination:The measure of responsiveness of the demand for a good towards the change in price of related good is called cross price elasticity of demand(Cped)

Cross price elasticity is measured in percentage terms.It is related on consumption behaviour
There are two kinds of related goods like

1. Complementary 
2. Substitutes

If the goods are not related their cofficient is ZERO

        CPED is generally calculated on %change in quantity by %change in price

• The cross price elasticity of demand is negative for complementary goods

Eg:when the price of coffee increases the quantity demand for tea decreases 

• The cross price elasticity of demand is positive for substitute goods

Eg:when price of coffee increases the quantity demand for tea also increases