1.2.3 Cross-Elasticity of Demand
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16 Terms
Cross - Elasticity of demand (XED) definition?
Is the measure of the responsiveness of demand for one good X to changes in price of another good Y.
What is the formula for Cross-Elasticity of demand?
What are the determinants of Cross-Elasticity of demand?
Cross-Elasticity of demand is determined by whether the product is a Substitute or a Complement.
What does a positive XED mean?
A positive XED indicates the goods are substitutes. As the price of Good X increases, the demand for Good Y also increases.
What does a negative XED mean?
A negative XED indicates the goods are complements. As the price of Good X increases, the demand for Good Y decreases.
What is an example of a positive XED?
Price of Coca-Cola Increases
The Demand for Pepsi Increases
What is an example of a Negative XED?
Price of printers Increases
Demand for ink Decreases
What will close substitute have?
Close substitutes will have a higher XED as consumers demand for good x will be more sensitive to a change in price of good y.
What will close Complement have?
Close complements will have higher XED as consumers demand for good X will be more sensitive to a change in price.
What happens when XED is close to 0?
The change in price of good X will have no impact on the demand.
Cross Elasticity Of Demand Qs.
What determines Cross-Elasticity of Demand for Firms?
Firms will attempt to change the Cross-Elasticity of their products as Substitutes and Complements.
How will Firms attempt to change the Cross-Elasticity of their Substitute product?
Firms will try to differentiate their product’s from the Competition.
How will Firms attempt to change the Cross-Elasticity of their Close Substitute product?
A firm with plenty of close substitutes will be less able to increase.
How will Firms attempt to change the Cross-Elasticity of their Complements product?
Firms will try to increase cross-elasticity by offering more complementary products together, encouraging customers to buy both and boosting overall sales.
XED practice qs)
