xed

• What does cross elasticity of demand measure?

  Responsiveness of quantity demanded
• Cross elasticity of demand helps determine if goods are substitutes or complements
• The cross elasticity of demand equation is the percentage change in quantity demanded of good A over the percentage change in price of good B.
• What does a positive XED figure indicate about the relationship between two goods?

  Substitute goods
• A negative XED figure means the goods are complements
• Substitute goods have a negative cross elasticity of demand.

  False
• Match the XED sign with the type of good:

  Positive ↔️ Substitutes

  Negative ↔️ Complements
• What does a XED figure greater than 1 indicate about demand between the goods?

  Price elastic demand
• If the XED figure is less than1, demand between the goods is price inelastic
• If the XED is 0, there is no relationship between the goods.
• Order the steps to calculate cross elasticity of demand:

  1️⃣ Calculate the percentage change in price of good B

  2️⃣ Calculate the percentage change in quantity demanded of good A

  3️⃣ Divide the percentage change in quantity demanded of good A by the percentage change in price of good B

  4️⃣ Determine the sign and magnitude of the XED figure
• What is the percentage change in price if the price of printers increases from £50 to £60?

  20%
• If the quantity demanded of printer ink decreases by 50% when the price of printers increases by20%, the XED is -2.5
• A negative XED of -2.5 indicates that printers and printer ink are complementary goods with price elastic demand.
• What is the percentage change in price if a MacBook Pro's price increases from £1000 to £1500?

  50%
• If the quantity demanded of Sony Vaio increases by 10% when the price of MacBook Pros increases by 50%, the XED is 0.2
• A positive XED of 0.2 indicates that MacBook Pros and Sony Vaios are weakly related substitutes.
• In a diagram showing cross elasticity of demand, what is plotted on the y-axis?

  Price of one good
• For complementary goods, the demand curve in a cross elasticity of demand diagram is downward sloping
• A steep demand curve in a cross elasticity of demand diagram indicates weakly related goods.
• What type of demand curve is associated with perfectly price inelastic goods in a cross elasticity of demand diagram?

  Vertical
• Order the steps to interpret a cross elasticity of demand diagram:

  1️⃣ Identify the type of relationship between the goods

  2️⃣ Determine the slope of the demand curve

  3️⃣ Interpret the relationship based on the slope
• A positive relationship in cross elasticity of demand implies that the goods are substitutes.