XED

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Created by
Toby Landes (GRK7)

Cards (21)

  • Cross elasticity of demand measures the responsiveness of quantity demanded of one good or service given a change in price of another.
  • XED gives us two key pieces of information: whether the goods are related to each other (substitute or complementary goods) and how closely related they are (strongly or weakly).
  • The equation for XED is: the center change in quantity demanded of good A over the percentage change in price of good B.
  • If the XED figure is positive, it means that the two goods are substitute goods.
  • If the XED figure is negative, it means that the two goods are complementary goods.
  • If the XED figure is greater than one, it means that demand between the goods is price elastic.
  • If the XED figure is less than one, it means that demand between the goods is price inelastic.
  • If the XED figure is zero, it means that demand between the goods is perfectly inelastic.
  • The quantity demanded of printer ink goes down by 50% when the price increases by 120%.
  • The sign in the equation indicates whether the goods are complementary or substitute goods.
  • If the goods are complements, the demand curve will be downward sloping.
  • If the goods are weakly related complements, the demand curve will be shallow.
  • Demand between complementary goods is price inelastic, meaning that as the price increases quantity demanded will decrease proportionately less than the increase in price.
  • Demand between substitute goods is price elastic, meaning that as the price increases quantity demanded will increase proportionately more than the increase in price.
  • If the sign is positive, the goods are substitute goods and you can ignore the sign.
  • The price of a MacBook Pro increases from £1,000 to £1,500, resulting in a 50% increase in price.
  • If the goods are substitutes, the demand curve will be upward sloping.
  • If the sign is negative, the goods are complementary goods and you must keep the sign in the equation.
  • If the goods are strongly related complements, the demand curve will be steep.
  • The quantity demanded of a Sony Vaio increases by 10% when the price of a MacBook Pro increases by 50%.
  • The quantity demanded of a Sony Vaio goes up by 10% when the price of a MacBook Pro increases by 50%.