LS15 - XED and YED

Question 1

XED

Answer 1

Measures responsiveness of demand for one good to changes in the prices of another good
XED = ±% demand for A ÷ ±% price of B
Substitute goods have a POSITIVE XED - demand for A increases as price of B increases
Complement goods have a NEGATIVE XED - demand for A decreases as price of B increases
Unrelated goods - 0 XED
Strong sub/comp = ±0.6XED
Weak sub/comp = ±0.2XED

Question 2

YED

Answer 2

Measures responsiveness of demand to changes in income
YED = ±% demand ÷ ±% income