Cross Elasticity of Demand Flashcards
1
Q
What does XED measure?
A
It measures the responsiveness of quantity demand of 1 good/service given a change in price of another
2
Q
How do you calculate XED?
A
% change in quantity demanded of good A/ % change in price of good B
3
Q
What does the positive or negative XED tell you about the relationship between the 2 goods?
A
Positive means they are substitute goods.
Negative means they are complementary goods.
4
Q
What are the different outcomes and their meanings?
A
> 1 Demand between goods are price elastic. (strongly related)
<1 Demand between goods are price inelastic. (weakly relate)
0 Demand between goods are perfectly price inelastic (no relation)
