MICRO - LS15 - XED & YED

Question 1

What does XED stand for

Answer 1

Cross price elasticity of demand

Question 2

XED formula

Answer 2

XED = (%change in quantity demanded of product A) / (%change in price of product B)

Question 3

XED Definition

Answer 3

Cross price elasticity of demand measures the responsiveness of demand for one good to changes in price of another good

Question 4

Substitute XED

Answer 4

positive
+0.6 - strong substitute
+0.2 - weak substitute

Question 5

Complement XED

Answer 5

Negative
-0.6 - strong complement
-0.2 - weak complement

Question 6

No relationship XED

Answer 6

0

Question 7

Acronym to remember XED

Answer 7

Party season near Christmas
Positive - substitute
Negative - complement

Question 8

What does YED stand for

Answer 8

Income elasticity of demand

Question 9

YED definition

Answer 9

Income elasticity of demand measures the responsiveness of demand to changes in income

Question 10

Whats a normal good and it’s YED

Answer 10

As income increases so does quantity demanded
Positive YED

Question 11

What’s an inferior good and it’s YED

Answer 11

As income increases quantity demanded decreases
Negative YED

Question 12

Luxury goods

Answer 12

Normal goods that have a YED larger then 1
Considered elastic as demand rises proportionally more then change in income

Question 13

Necessary goods

Answer 13

Normal goods that have a YED between 0 & 1
Considered inelastic as demand rises proportionally less then change in income

Question 14

Uses of YED

Answer 14

• effect of recession/growth on demand
• business planning for product range
• helps firms anticipate future demand

Question 15

Uses of XED

Answer 15

• marketing strategies e.g selling complements together, bundles
• if competition changes it’s prices, firms can work out the effect on their demand