Cross Elasticity Of Demand Flashcards
1
Q
Cross elasticity of demand
(XED)
A
Measures the responsiveness of quantity demanded for good X following a change in price to good Y
2
Q
XED calculation
A
% change in quantity demanded for good X / % change in price for good Y
3
Q
Substitutes
A
- Positive cross elasticity of demand
- An increase in the price of one product will lead to a rise in demand for its substitute - as consumers swap away from the more expensive good.
4
Q
Weak substitutes
A
- Low XED
- Inelastic (unresponsive)
- Between 0 and 1
5
Q
Close substitutes
A
- High XED
- Elastic (responsive)
- Between 1 and infinity
6
Q
Complements
A
- Strong complementary relationship = negative XED
- An increase in the price of good X will lead to a contraction in quantity demanded for X and a fall in demand for complement, good Y.
7
Q
Weak complements
A
- Low XED
- Inelastic (unresponsive)
- Between 0 and -1
8
Q
Close complements
A
- High XED
- Elastic (responsive)
- Between -1 and - infinity
9
Q
Weak substitutes diagram
A
10
Q
Close complements - diagram
A
