2.6 CROSS ELASTICITY OF DEMAND

Question 1

what is XED

Answer 1

the responsiveness of demand of one good to changes in the price of a related good (either substitute or complimentry)

Question 2

how to calculate XED

Answer 2

% change in quantity demanded of good A / % change in price of good B

Question 3

what can XED also be seen as

Answer 3

CED

Question 4

if a good is complimentary what will the result of XED be

Answer 4

• it will have a negative sign (inverse relationship between the two)

Question 5

if a good is substitute what will the result of XED be

Answer 5

• it will have a positive sign (positive relationship between the two )