Cross elasticity of demand

Cards (6)

What is the abreviated form of cross elasticity of demand?
XED
What is the cross elasticity of demand?
A measure of the responsiveness of quantity demanded of product Y to a change in the price of product X
What is the formula for the cross elasticity of demand|?
Percentage change in quantity demanded of product Y / percentage change in price of product X
What does a positive sign in the cross elasticity of demand mean?
It indicates that the products are substitutes, so a rise in price for one product will cause an increase in demand for the other product
What does a negative sign in the cross elasticity of demand mean?
It indicates that the products are compliments, so a rise in price for one product will cause a decrease in demand for another product
Why is XED useful for firms?
It is helpful for firms in setting prices for their products