Cross Price Elasticity Of Demand

Question 1

CED(XED)

Answer 1

The responsiveness of Demand for a good x to a change in the price of good Y

Question 2

Formula

Answer 2

% change in QD(X)/ % change in Price(Y)

• If the answer is positive- substitute goods
• If the answer is negative- complementary goods

Question 3

Values

Answer 3

0= No relationship
0-1= Weak relationship 
>1= Strong relationship 

CAN BE POSITIVE OR NEGATIVE
positive=substitute goods
Negative=complementary goods

Question 4

What happens if they are weak complements?

Answer 4

A large drop in price of X causes a small rise in demand for Y

Question 5

What happens if they are close complements?

Answer 5

A large drop in Price of X causes a large rise in demand for Y