Cross Elasticity of Demand XED Flashcards
1
Q
What is XED?
A
Measures the responsiveness of quantity demanded of a good/service given a change in price of another
2
Q
XED Equation
A
XED= %ΔQD of Good A / %ΔP of good B
3
Q
What does it mean if XED is positive?
A
It is a Substitute good
4
Q
What does it mean if XED is negative?
A
It is a Complementary good
5
Q
What does it mean if the number is >1?
A
Demand between the goods is price elastic (strongly related)
6
Q
What does it mean if the number is <1?
A
Demand between the goods is price inelastic (weakly related)
7
Q
What does it mean if the number is 0?
A
Demand between the goods is perfectly price inelastic (no relationship)
