Cross Price Elasticity of Demand- XED

Question 1

What is cross price elasticity of demand?

Answer 1

a measure of the responsiveness of quantity demanded of one good to a change in the price of another good

Question 2

What is the formula for cross price elasticity of demand?

Answer 2

% change in QD of good A/ % change in P of good B

Question 3

What do the first letters of the mnemonic ‘Party Season Near Christmas’ stand for?

Answer 3

Positive (XED) Substitute, Negative (XED) Complementary

Question 4

What does it mean if XED is positive and greater than 1?

Answer 4

the goods are strong substitutes (price elastic)

Question 5

What does it mean if XED is positive and less than 1?

Answer 5

the goods are weak substitutes (price inelastic)

Question 6

What does it mean if XED is negative and greater than 1?

Answer 6

the goods are strong complements (price elastic)

Question 7

What does it mean if XED is negative and less than 1?

Answer 7

the goods are weak complements (price inelastic)