Cross Price Elasticity of Demand (XED)

Question 1

What is cross price elasticity of demand (XED)?

Answer 1

Cross price elasticity of demand- measures responsiveness of demand for 1 🚘 to changes in price of another 🚘

Question 2

How do you calculate cross price elasticity of demand?

Answer 2

XED = % change in quantity demanded of 🚘 A/% change in price of 🚘 B

Question 3

What does the XED value tell us about the goods?

Answer 3

• If XED > 0 then 2 🚘 are substitutes
• If XED =0 then 2 🚘 are not connected (i.e. no relationship between the 2 🚘)
• If XED < 0 then 2 🚘 are complements

Question 4

What tells us how strong/close 2 goods are substitutes/complements?

Answer 4

Larger ➕ value = closer substitute

Smaller ➖ value = closer complement