The CPED is used to illustrate how the demand for a good will change for a given change in price of another. This is very useful for identifying the likely impacts on both consumers and producers.

A CPED value of 0.4 can be interpreted as follows, a 1% increase in the price of good A will result in a 0.4% increase in the demand for good B. Alternatively, a CPED value of -1.5 implies that a 1% increase in the price of good A will result in a fall of 1.5% in the quantity demanded of good B.

Interpreting the CPED for consumers

The sign illustrates how consumers react to a change in the price conditions. For instance, if the goods are substitutes (positive sign for the CPED), then an increase in the price of one good results in consumers switching their consumption patterns towards alternative goods. This action is due to consumers trying to maximise their utility from the bundle of goods they purchase. Therefore, the higher price of one good results in an increase in the demand for alternatives (substitutes).

Interpreting the CPED for producers

Economists assume that the aim of the producer is to maximise their profit, when profit is calculated as total revenue minus total cost.

The value and sign of the CPED can be used to identify the consequences on the firm's total revenue.

For a given increase in price of good A, when the CPED is relatively inelastic for a substitute good, such as Good B (CPED = +0.2) then the increase in price will result in a shift in the demand curve for the other good. The outcome is that the total revenue for the other good will increase. The impact on the total revenue of good A will depend upon the PED of good A.