Cross Elasticity of Demand (XED)

• Examples of substitutes


  Substitutes

  
• Examples of Compliments


  Compliments

  
• Equation for XED

  XED = (% change in Quantity Demand for good B) / (% change in price for good A)
• Easy diagram to understand

  
• The relevance of XED to a firm

  • Can help plan production
  • Can help plan sales space
• The cross-elasticity of demand is the responsiveness of demand for one good to the change in price of another good.