XED

Question 1

What is XED?

Answer 1

The responsiveness of demand for a good to a change in the price of a related good

Question 2

What is the formula of XED?

Answer 2

% change in demand for good A / % change in price of good B

Question 3

When is XED positive?

Answer 3

XED is positive for substitute goods

Question 4

When is XED negative?

Answer 4

XED is negative for complementary goods

Question 5

What are substitutes?

Answer 5

Goods that can be used in place of each other to satisfy a similar need or desire eg: tea and coffee

Question 6

What are complements?

Answer 6

Goods that are typically consumed or used together because they enhance each others value eg: tennis rackets and tennis balls

Question 7

When are goods weak substitutes?

Answer 7

When XED is positive between 0 and +1

Question 8

When are goods strong substitutes?

Answer 8

When XED is positive between +1 and +infinity

Question 9

When are goods weak complements?

Answer 9

When XED is negative between 0 and -1

Question 10

When are goods strong complements?

Answer 10

When XED is positive between -1 and
-infinity

Question 11

What are the uses of XED?

Answer 11

• Marketing strategies eg: selling complements in bundles
• If a competitior changes its price, firms can work out the effect on their demand