1.2.3:(XED) Cross Elasticity of Demand

Question 1

What is cross elasticity of demand?

Answer 1

• The responsiveness of a change in demand of one good to a change in price of another good.

Question 2

What are the uses of XED?

Answer 2

• Gives on insight into competition for firms
• They are less likely to be affected by price changed by other firms, if they are selling complementary goods or substitutes

Question 3

What is the formula for XED?

Answer 3

• %change in Quantity demanded of A/ % change in Price of B

Question 4

When is the demand of a good weakly related?

Answer 4

• When XED is between 0 and 1

Question 5

When is the demand of strongly related goods?

Answer 5

• When XED is more than 1, then demanded between good

Question 6

What do the signs of XED represent?

Answer 6

• If figure is +, the goods are substitutes
• If figure is -, the goods are complements