XED's

Question 1

Cross elasticity of demand (XED)

Answer 1

How responsive the change in quantity demanded of one good is, when the price of another good is changed. It shows us if goods are unrelated, complements and substitutes. Numerical value with no units

Question 2

XED formula

Answer 2

% change in Q.D of good A / % change of price in good B

Question 3

XED answer

Answer 3

If answer is positive, goods are substitutes
If answer is negative, goods are complements
If answer is 0, goods are unrelated

Question 4

Substitutes

Answer 4

Positive XED’s (higher number=closer sub). Usually swapped out for one another. A fall in the price of one sub (e.g. rice) will decrease the demand for another sub (e.g. pasta) e.g. close sub = 2 types of pens. Pens and pencils are subs but not close

Question 5

Complements

Answer 5

Negative XED’s. Usually consumed together with the other good. An increase in the price of one good (crisps) will lead to a reduction in demand for its complements (dips)

Question 6

Unrelated

Answer 6

XED=0. They are independent of each other and don’t affect the demand of each other (e.g. bread and deodorant)