13) Cross Elasticity Of Demand

Question 0

what does XED show

Answer 0

Whether relationship between two goods are
➡️complements
➡️substitutes

Question 1

What does cross elasticity of demand mean

Answer 1

⚫️The responsiveness
➡️quantity demanded of one good
➡️to a change in the price of another

Question 2

Whats the XED formula

Answer 2

%

Question 3

Interpret the value of XED when its positive

Answer 3

⚫substitutes
➡️positive relationship between them
➡️if price of good goes up
➡️consumers may switch to alternative
➡️so demand for substitute rises

⚫️if relationship is weak
➡️between 0-1

⚫️if relationship is strong
➡️greater than one

Question 4

Interpret XED when is negative

Answer 4

⚫️complements
➡️negative relationship
➡️if price of good goes up
➡️consumers reduce demand for its complement

⚫️if relationship is weak
➡️between zero and minus one

⚫️if relationship is strong
➡️less than minus one

Question 6

Interpret the XED when the value is zero

Answer 6

⚫independent goods
➡️no relationship between them
➡️demand for one good
➡️is not depended on the changes of price for another good

Question 7

Describe substitute goods like cornflake and weetibix graphically

Answer 7

⚫️positive relationship
➡️upward sloping demand curve
➡️price of cornflakes decreases
➡️demand for weetibix should also decrease

Question 8

Describe complementary goods like cornflakes and milk graphically

Answer 8

⚫️negative relationship
➡️downward sloping demand curve
➡️if price of cornflake falls
➡️demand for milk increases

Question 9

➡️if 10% rise in price of fish
➡️cause 2% rise in demand of chicken

⚫️Describe the XED

Answer 9

XED=%