c) Cross price elasticity of demand

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5 Terms

1
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  • define cross elasticity of demand

  • how sensitive a change in quantity demanded for good A is to a change in price for good B

2
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  • state the formula for XED

  • XED = (%ΔQDA) / (%ΔPB)

  • cross price elasticity of demand = percentage change in quantity demanded for good A / percentage change in price for good B

3
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  • state the type of good A and B is if XED < 0

  • describe the relationship between good A and B

  • state the characteristics of a strong relationship between good A and B

  • state what the gradient of this type of good would look like

  • complementary

  • increase in price for good B → decrease in quantity demanded for good A

  • high XED + more elastic demand

  • gradient = negative

4
New cards

  • state the type of good A and B is if XED = 0

  • describe the relationship between good A and B

  • state what the gradient of this type of good would look like

  • unrelated

  • change in price for good B → no change in quantity demanded for good A

  • gradient = 0 (vertical)

5
New cards

  • state the type of good A and B is if XED > 0

  • describe the relationship between good A and B

  • state the characteristics of a strong relationship between good A and B

  • state what the gradient of this type of good would look like

  • substitutes

  • increase in price for good B → increase in quantity demanded for good A

  • high XED + more elastic demand

  • gradient = positive