15- Cross Elasticity Of Demand

Question 1

XED definition

Answer 1

XED measures the proportionate response of quantity demanded of one good to the proportionate change in the price of others.

Question 2

XED equation

Answer 2

XED=% change on quantity demanded of good X/ % change of price of good Y

Question 3

What does it mean if XED is greater than 1 or less than -1?

Answer 3

It is elastic

Question 4

What does it mean if XED lies between 1 and -1?

Answer 4

Inelastic

Question 5

Effect of rise in price of a substitute?

Answer 5

An increase in quantity demanded of other good

Question 6

Effect of rise in price of a substitute?

Answer 6

An increase in quantity demanded of other good

Question 7

XED of a substitute

Answer 7

2 goods that are substitutes will have a positive cross elasticity as increase price of one substitute, increases demand for the other.

Question 8

Effect of rise in price of a complement?

Answer 8

Fall in quantity demanded of its complement

Question 9

XED of complements

Answer 9

2 goods that are complementary will have a negative cross elasticity. An increase In the price of one good leads to a fall in demand for its complement

Question 10

XED of goods that aren’t related

Answer 10

0

Because the change of price would be divided by 0

Question 11

How to show goods are strongly related?

Answer 11

XED is close to 1