c) Cross price elasticity of demand
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5 Terms
define cross elasticity of demand
how sensitive a change in quantity demanded for good A is to a change in price for good B
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
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
elastic XED + elastic demand
gradient = negative
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)
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
elastic XED + elastic demand
gradient = positive
