Cross Price Elasticity of demand (CED) Flashcards
1
Q
What is Cross Price Elasticity of Demand (XED)?
A
This measures the responsiveness of demand for one good to a change in price of another good
2
Q
What types of goods are XED products normally?
A
Substitute or complementary goods
3
Q
What is the formula for XED?
A
% change in quantity demanded of Good A divided by % change in price of Good B
4
Q
What type of good has a positive correlation between the rival’s price and the good’s demand?
A
Substitute good
5
Q
What type of good has an inverse correlation between the price of another good and Qd of the original good we’re interested in?
A
Complementary good
6
Q
What are the 4 ways we can define an XED good?
A
1)0>1 = weak substitute (inelastic). 2)1> = strong substitute (elastic). 3)0
