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Flashcards in XED Deck (7)
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1

Cross-Price Elasticity of Demand (XED)

a measure of the percentage change in quantity demanded for one good (Y) from a percentage change in the price of another good (X).
- XED simply measures how the price of one good (good X) affects the demand for another good (good Y).
- It therefore reveals the relationship between goods: substitutes (competitive demand) and complements (joint demand)

2

Negative XED values

⬆ price (X) → ⬇ demand (Y)
⬇ price (X) → ⬆ demand (Y)
= Complements

3

Positive XED values

⬆ price (X) → ⬆ demand (Y)
⬇ price (X) → ⬇ demand (Y)
= Substitutes

4

Elastic XED values

XED greater than 1 (e.g. XED = 2)
XED less than -1 (e.g. XED = -2)
% Δ price (X) < % Δ demand (Y)
= X and Y are strong relationship

5

Inelastic XED values

XED between 0 and 1 (e.g. XED = 0.5)
XED between 0 and -1 (e.g. XED = -0.5)
% Δ demand (Y) < % Δ price (X)
= X and Y are weak relationship

6

XED equal to 0

Means that they have no relationships

7

XED graphs

- Price of good x on the y axis
- Quantity demanded of good y on the x axis
- Substitutes - upwards sloping
- Complements - downward sloping
- inelastic - steeply sloping - XED < 1
- elastic - gentle sloping - XED > 1