Cross-Price Elasticity Calculator

Formulas

The formula used in the calculations is:

\[ \text{Elasticity} = \frac{(\text{price}_{1A} + \text{price}_{2A})}{(\text{quantity}_{1B} + \text{quantity}_{2B})} \times \frac{\Delta \text{quantity}_B}{\Delta \text{price}_A} \]

where:

$ \text{price}_{1A} $ is the initial price of product A
$ \text{price}_{2A} $ is the final price of product A
$ \Delta \text{price}_A $ is the change in price of product A
$ \text{quantity}_{1B} $ is the initial demand for product B
$ \text{quantity}_{2B} $ is the final demand for product B
$ \Delta \text{quantity}_B $ is the change in demand for product B

Description

This calculator computes the cross-price elasticity of demand based on the input values of initial and final prices of product A, and the initial and final demands of product B. Cross-price elasticity measures the responsiveness of the quantity demanded for one good when the price of another good changes.

Example Calculation

Let's assume the following:

Initial Price of Product A: $0.69
Final Price of Product A: $0.59
Initial Demand for Product B: 680 million
Final Demand for Product B: 600 million

Calculate the change in price and quantity:

\[ \Delta \text{price}_A = 0.59 - 0.69 = -0.10 \]

\[ \Delta \text{quantity}_B = 600 - 680 = -80 \]

Calculate the cross-price elasticity:

\[ \text{Elasticity} = \frac{(0.69 + 0.59)}{(680 + 600)} \times \frac{-80}{-0.10} = \frac{1.28}{1280} \times 800 = 0.8 \]

Therefore, the cross-price elasticity is 0.8, indicating that Coca-Cola and Pepsi are substitute goods.