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

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