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Microeconomics
XPED
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Cards (11)
What does Cross Price Elasticity of Demand (Xped) examine?
It examines price changes of one good affecting another
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How does Cross Price Elasticity of Demand relate to competing goods?
It shows how demand for one good changes with price of another
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If Vauxhall cuts prices by 10%, what happens to Ford's demand?
Ford's demand might be expected to fall
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What does a Cross Price Elasticity of Demand of +1.2 indicate?
Ford cars are relatively cross price elastic
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What is the formula for calculating Cross Price Elasticity of Demand?
Xped
= %
ΔQd
of good A / %
ΔP
of good B
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If demand for Ford falls by 12% when Vauxhall's price drops by 10%, what is Xped?
Xped = +
1.2
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What does a positive Cross Price Elasticity indicate about two goods?
They are
competing
or
substitute
goods
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What happens to car demand when petrol prices rise?
Demand for cars is
expected
to fall
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If petrol prices rise by 20% and car demand falls by 5%, what is Xped?
Xped =
-0.25
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What does a negative Cross Price Elasticity of Demand indicate?
Goods are
complementary
and consumed together
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What does a Cross Price Elasticity between 0 and 1 imply?
Demand is cross price
inelastic
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