Cross Price Elasticity of Demand

Question 1

What is CPED?

Answer 1

CPED measures the % change in quantity demanded for a product following the % change in price of a related good.

Question 2

What is the formula for CPED?

Answer 2

% change in P of good y

Question 3

What CPED value do unrelated goods have?

Answer 3

0

Question 4

What classes of goods have CPED values?

Answer 4

Substitutes and complements

Question 5

What does SAPCAN mean?

Answer 5

Substitutes are positive
Complements are negative

Question 6

What type of demand are substitutes?

Answer 6

Competitive demand

Question 7

What CPED value do substitutes have?

Answer 7

Positive

Question 8

What does a CPED value of >1 mean?

Answer 8

Products are strong substitutes
Perfect replacements
Cross price elastic

Question 9

What does a CPED value of <1 mean?

Answer 9

Products are weak substitutes
Imperfect replacements
Cross price inelastic

Question 10

What type of demand do complements have?

Answer 10

Joint demand

Question 11

Is the CPED value for complements positive or negative?

Answer 11

Negative

Question 12

What does a CPED value of < -1 mean?

Answer 12

Negatively cross price elastic
Products are strong complements
Demand for one of the products is very likely to lead to demand for the other

Question 13

What does a CPED value of 0 to -1 mean?

Answer 13

Negatively cross price inelastic
Products are weak substitutes
These are products that can be used together but they don’t need to be, and can be used equally well separately or with another product.