1.2.3b - cross elasticity of demand

0.0(0)
studied byStudied by 0 people
0.0(0)
full-widthCall Kai
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
GameKnowt Play
Card Sorting

1/10

encourage image

There's no tags or description

Looks like no tags are added yet.

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

11 Terms

1
New cards

abbreviation for cross elasticity of demand

XED

2
New cards

define XED

measures the responsiveness of demand for one good to a change in the price of another good

3
New cards

XED formula

percentage change in demand of good B/percentage change in price of good A

<p>percentage change in <strong>demand </strong>of good B/percentage change in <strong>price </strong>of good A</p>
4
New cards

alternative formula for XED

(price of A/demand of B) X (change in quantity of B/change in price of A)

5
New cards

two types of relationships goods can have

substitutes (in competition with one another) = competitive demand

complements (one goes with the other) = joint demand

6
New cards

substitutes XED

will be positive

increase in strawberry price = increase in raspberry demand

reduction in iPhone price = decrease in Samsung demand

<p>will be <span style="color: green"><strong>positive</strong></span></p><p><span style="color: red"><strong>increase</strong></span><span style="color: #000000"> in </span><span style="color: red"><strong>strawberry price</strong></span><span style="color: #000000"> = </span><span style="color: green"><strong>increase</strong></span><span style="color: #000000"> in </span><span style="color: green"><strong>raspberry demand</strong></span></p><p><span style="color: green"><strong>reduction </strong></span><span style="color: #000000">in</span><span style="color: green"><strong> iPhone price </strong></span><span style="color: #000000">=</span><span style="color: green"><strong> </strong></span><span style="color: red"><strong>decrease</strong></span><span style="color: green"><strong> </strong></span><span style="color: #000000">in</span><span style="color: green"><strong> </strong></span><span style="color: red"><strong>Samsung demand</strong></span></p>
7
New cards

complements XED

will be negative (like a normal demand curve)

increase in strawberry price = decrease in cream demand

reduction in iPhone price = increase in AirPods demand

<p>will be <span style="color: red"><strong>negative</strong></span><span style="color: #000000"> (like a normal demand curve)</span></p><p><span style="color: red"><strong>increase </strong></span><span style="color: #000000">in</span><span style="color: red"><strong> strawberry price </strong></span><span style="color: #000000">=</span><span style="color: red"><strong> decrease </strong></span><span style="color: #000000">in</span><span style="color: red"><strong> cream demand</strong></span></p><p><span style="color: green"><strong>reduction </strong></span><span style="color: #000000">in</span><span style="color: green"><strong> iPhone price</strong></span><span style="color: #000000"> = </span><span style="color: green"><strong>increase </strong></span><span style="color: #000000">in</span><span style="color: green"><strong> AirPods demand</strong></span></p>
8
New cards

elastic XED

XED>1

means the good is responsive to the change in price of its complements or substitutes

(the two goods have a strong interrelationship in terms of price)

9
New cards

inelastic XED

XED<1

the good is unresponsive to the change in price of its complements or substitutes

(two goods have a weak interrelationship in terms of price)

10
New cards

unitary XED

XED = 1

percentage change in price of one good is exactly proportional to percentage change in demand of another good

11
New cards

XED = 0

two goods are unrelated

change in price in one has no effect on change in demand for another