Cross elasticity of demand Flashcards
1
Q
What is Cross elasticity of demand
A
a measure of the degree of responsiveness of the demand of one good (good A) due to changes to the price of another good. This is calculated by dividing the %∆ in the demand for good A by the %∆ in the price of good B
2
Q
Formula for XED
A
%∆ demand for good A
_________________________
%∆ of price of good B
3
Q
XED = +ve
A
Substitute goods. A substitute good is a good that can be used to replace another good
4
Q
XED= -ve
A
Complementary goods. These are goods that can be used hand in hand
5
Q
XED = 0
A
No relationship between Good A and Good B
6
Q
XED= 0<XED<1
A
Cross inelastic in demand (The %∆ in P of 1 good would lead to a less than proportionate ∆ in the D for the other good
