Before understanding the concept of cross price elasticity of demand we have to understand first the concepts of complementary and substitute goods or products.
Complementary products are those products that have used with each other. Without one product other product has no use. These products must be in combination form, without one other is useless or have minimum use. In simple words, both products are dependent on each other. Like Pen and Ink etc.
Substitute products are those products that have used instead of one another. Without one product other product is also useable. These products must not be in combination form, without one other have maximum or wide use. In simple words, both products are independent of each other. Like Flour and Rice etc.
The concept of cross price elasticity of demand is of different nature as compared to other concepts of elasticities. Cross price elasticity of demand shows the effect of demand in one commodity by changing or variations in the price of another commodity.
Let take an example to clear the concept. Let say we have two products pen and ink. We say the price of the pen is 5$ and the price of ink is 2$. Market conditions changes and the demand for the pen increases, by following the Law of Demand it means the price of the pen has decreased. When the demand of the pen pulls up the demand for ink too. The demand for both products moves in the same manner which shows that both are complementary products.
Cross Price Elasticity Calculator
In the below Cross Price Elasticity Calculator, you just have to put the price and demand of both products. The details of products at time point 1 and time point 2, Cross Price Elasticity Calculator will give you the results that whether the products are complementary or substitute for each other.