9-Cross Elasticity of Demand (XED)

Question 1

Define Cross Elasticity of Demand (XED)

Answer 1

It measures the responsiveness of Quantity Demanded for one good dua to price Δ of another good

Question 2

Formula for XED

Answer 2

%ΔQD of Good A / %ΔP of Good B

Question 3

Interpretation of Values XED

Answer 3

XED is Positive (+) –> Substitute Good. Rise in the price of ONE good A cause an INCREASE in DEMAND for good B.
XED is Positive (+) –> Substitute Good

Question 4

Define Complementary Good

Answer 4

Goods that are Jointly Demanded and consumed together. They have a Negative XED (cars and petrol)

Question 5

Define Substitute Good

Answer 5

Goods that are alternatives of another good and provides similar benefits. They have a Positive XED (tea and coffee)