Cross elasticity of demand Flashcards
1
Q
Definition of cross elasticity of demand (Xed)?
A
measures the responsiveness of demand for good X following a change in the price of a related good Y
2
Q
Equation for calculating cross elasticity of demand:
A
% change of quantity demanded for good 1/ % change of price of good 2
3
Q
the value of XED for two substitutes is always what?
A
Positive
4
Q
the value of XED for two complements is always what?
A
Negative
5
Q
What is the Xed for a strong and weak complement?
A
strong= between -1 and -2 weak= between 0 and -1
6
Q
What is the Xed for a strong and weak substitute?
A
weak= between 0 and 1 strong= between 1 and 2
7
Q
What is the Xed for an independent/ unrelated product?
A
0
