Cross Price Elasticity of Demand

Question 1

What is the formula for Cross Price Elasticity of Demand?

Answer 1

XED = % change in Quantity Demanded of X / % change in Price of Y

Question 2

What does Cross Price Elasticity of Demand measure?

Answer 2

XED measures how responsive the quantity demanded of one good is to changes in the price of a different good.

Question 3

What does Cross Price Elasticity tell us?

Answer 3

-tells us if the product is a substitute good or a complementary
-tells us how cross price elastic demand for that good is to changes in income.

Question 4

What is a substitute good?

Answer 4

Two goods that are substitutes will have a +positive (>0) cross good.

Question 5

What is a complementary good?

Answer 5

Two goods that are compliments will have -negative(<0)cross elasticity.

Question 6

What is an Unrelated good?

Answer 6

These goods will have a cross elasticity of 0 e.g. a rise in car prices will have no affect on Tipp-ex.

Question 7

What are the uses of Cross Price Elasticity of Demand?

Answer 7

-Helps classify goods as complementy or substitute
-helps deterine pricing
-