XPeD Flashcards
What is XPeD?
Cross Price Elasticity of Demand.
It measures the responsiveness of quantity demanded of one good to a change in price of another good.
What is the formula for XPeD?
Percentage change in price of good B
What happens when XPeD is positive?
The good is a substitute.
What happens when the XPeD is a low positive?
The good is a weak substitute and has an inelastic XPeD.
What happens when the XPeD is a high positive?
The good is a strong substitute and has an elastic XPeD.
What happens when the XPeD is negative?
The good is a complimentary good.
What happens when the XPeD is a low negative (away from 0 e.g. -20)?
The good is a strong compliment and has an elastic XPeD.
What happens when the XPeD is a high negative (close to 0 e.g. -0.5)?
The good is a weak compliment and has an inelastic XPeD.
