cross elasticity of demand

• What is cross elasticity of demand (XCD) used to measure?

  Responsiveness of demand for one good to price change of another
• How are ice lollies and ice creams related in terms of demand?

  They are substitutable goods
• What happens to ice cream demand if ice lolly prices increase?

  Demand for ice cream increases
• What does a positive XCD value indicate about two goods?

  They are substitutes
• What is the formula for calculating XCD?

  XCD = % change in demand for good B / % change in price of good A
• If the demand for good B increases by 80% and the price of good A increases by 160%, what is the XCD?

  XCD = 0.5
• What does an XCD value of 1 indicate?

  Demand for good B changes proportionately to price of good A
• How do you calculate the percentage change in quantity demanded?

  (New quantity - Old quantity) / Old quantity × 100
• If the demand for apples increases from 3 to 6 units, what is the percentage change?

  100%
• What happens to the demand for printer paper if printer prices increase?

  Demand for printer paper decreases
• Why do complementary goods have a negative XCD?

  Price increase of one leads to demand decrease of the other
• What is the XCD value for unrelated goods?

  Zero
• What does it mean if two goods are unrelated in terms of XCD?

  Price change of one does not affect demand for the other
• What are the characteristics of substitutes in terms of demand?

  • Price increase of one leads to demand increase of the other
  • XCD for substitutes is positive
  • Demand for substitutes moves in the same direction
• What are the characteristics of complements in terms of demand?

  • Price increase of one leads to demand decrease of the other
  • XCD for complements is negative
  • Demand for complements moves in opposite directions
• What is the significance of XCD in economics?

  • Measures responsiveness of demand between goods
  • Helps understand market dynamics
  • Indicates relationship between goods (substitutes, complements, unrelated)
• How does the XCD curve behave for substitutes and complements?

  • Substitutes: Upward sloping curve (positive XCD)
  • Complements: Downward sloping curve (negative XCD)
• What is the impact of unrelated goods on XCD?

  • No impact on each other's demand
  • XCD value is zero