Cross Elasticity Of Demand

Question 1

What does XED measure?

Answer 1

The relationship between the demand for a good with respect to the price of another good

Question 2

What is the formula for XED?

Answer 2

% change in qty demanded for good A / % change in price for good B

Question 3

What are the three types of XED relationships?

Answer 3

• complementary goods
• substitute goods
• unrelated goods

Question 4

What is a complementary good?

Answer 4

A good that is in joint demand with another good
Eg tennis rackets and tennis balls

Question 5

What does it mean is XED is positive?

Answer 5

The two goods are substitutes
(party season near Christmas: positive = substitute)

Question 6

What does it mean if XED is negative?

Answer 6

The two goods are complementary
(party season near Christmas: negative = complementary)

Question 7

What does it mean if XED is negative?

Answer 7

There is no relationship between the two goods

Question 8

What does it mean if XED is elastic?

Answer 8

• above 1
• the goods are strong substitutes/ complements

Question 9

What does it mean id XED is inelastic?

Answer 9

• 0-1
• the goods are weak substitutes/ complements

Question 10

What is a giffen good?

Answer 10

Doesn’t follow the rule/ pattern

Question 11

What is a perverse demand curve?

Answer 11

Upward sloping