Cross price elasticity of demand = (% change in quantity demanded of one good) ÷ (% change in price of another good)
Formula: XED = [(Q2 – Q1) / Q1] ÷ [(P2 – P1) / P1]
Identify the two goods: the product whose demand changes and the other product whose price changes
Find the initial quantity demanded and final quantity demanded of the first good
Find the initial price and final price of the second good
Calculate the percentage change in quantity demanded
Calculate the percentage change in the other good’s price
Divide the percentage change in quantity demanded by the percentage change in price
Interpret the result:
Positive XED = substitute goods
Negative XED = complementary goods
Zero or near zero XED = unrelated goods