Th1.2: Cross Elasticity of Demand (XED) Flashcards
1
Q
Define XED
A
the responsiveness of demand for one good (A) to a change in price of another good (B)
2
Q
XED formula
A
% change in P of B
3
Q
What is it when XED > 0?
A
substitutes
4
Q
What is it when XED = 0
A
unrelated goods
5
Q
What is it when XED < 1?
A
complementary goods
6
Q
What does two goods being substitutes mean?
A
an increase in the price of good B will increase demand for good A
7
Q
What does two goods being complementary mean?
A
an increase in the price of good B will decrease demand for good A
8
Q
What does the size of the integer represent?
A
the strength of the relationship - the larger the number the stronger the relationship between the two
9
Q
What is this significance of XED?
A
firms need to know how price changes by other firms will impact them
