XED Flashcards
1
Q
define XED
A
it is the responsiveness of a change in demand for good B to a change in price of good A.
2
Q
equation for XED
A
XED= %change in qty of B / %change in price of A
3
Q
how is the XED interpreted
A
SIGN IS SEPARATE FROM THE VALUE. if the sign is POSITIVE, good b is a SUBSTITUTE, if the sign is NEGATIVE, good b is a COMPLIMENT. compliments have a inverse correlation with price of a because when the demand for a decreases and if b is a compliment demand for b decreases as well when price increases. if its a substitute, when price of a increases people switch to B so demand for b increases when pric eof a increases. value represents the elasticity
