Chapt 3 XED

Question 1

Sign of XED meaning

Answer 1

+ve XED
- Goods are substitutes
Eg:
- rise in price of shoes lead to fall in QD of shoes
- DD of substitutes good like slippers rises
- Price of slippers rises

-ve XED
- Goods are complements
-

Question 2

Define XED

Answer 2

Cross elasticity of demand measure the responsiveness of demand of a good to a change in price of another good, ceteris paribus

Question 3

Formula for XED

Answer 3

XED =
Price of good B (effect)
—————————————
Price of good A (cause)

Question 4

Magnitude of XED meaning

Answer 4

|XED|> 1
- includes XED>1 and XED <-1

XED>1
- Goods are close substitutes

XED <-1
- Goods are close complements