XED (cross elasticity of demand)

• Define cross elasticity of demand?

  The responsiveness of demand for one product to a change in price of another product
• What is the formula for calculating XED?

  Cross-price elasticity of demand formula: (Percentage change in quantity demanded of good X) / (Percentage change in price of good Y)
• Define complements


  Products with joint demand
• Define substitutes


  Products that are competitive with one another
• What does a positive XED with a numerical value of 0-1 tell you about the relationship between the goods?

  Distant (weak) substitutes
• What does a positive XED with a numerical value of >1 tell you about the relationship between the goods?

  Close (strong) substitutes
• What does a negative XED with a numerical value of 0 to(-1) tell you about the relationship between the goods?

  Distant (weak) complements