Cross price elasticity (XED)

Question 1

W hat is XED?

Answer 1

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

Question 2

What is the formula for calculating XED?

Answer 2

( % change in quantity demanded for good X good 1) / (% change in price of good Y/good 2)

Question 3

What 2 goods have a positive XED?

Answer 3

substitutes

Question 4

What 2 goods have a negative XED?

Answer 4

compliments

Question 5

If there is not relation ship between two goods, what will XED be?

Answer 5

0

Question 6

What does XED of two goods depend on?

Answer 6

How good they are as substitutes, weak or strong

Question 7

Examples of substitutes

Answer 7

pork and beef, Netflix and DVD’s, Spotify and Apple Music, costa & starbucks

Question 8

Examples of compliments

Answer 8

pens & pencil cases, tennis rackets and tennis balls, bikes and helmets, DVD’s and DVD players

Question 9

describe substitues graph

Answer 9

positively sloping, steadily

Question 10

describe compliments graph

Answer 10

negatively, steadily sloping

Question 11

describe a no relationship graph

Answer 11

straight, horizontal line

Question 12

define weak substitutes

Answer 12

can have one without needing the other e.g pens and pencil cases

Question 13

define strong substitutes

Answer 13

cant have one without having the other e.g. tennis rackets and tennis balls