5/6 - YED and XED

What is YED

YED measures how a change in income can cause a change in the demand for a given product or service

What is the YED formula

% change in quantity demanded / % change in income

What does an negative YED mean

What does a positive YED mean

A percentage rise in income leads to a fall in quantity demanded

A percentage rise in income leads to a rise in quantity demanded

What are all the types of good that can be determined by YED

Normal goods YED>0 - Luxury (YED>1) and normal (0<YED<1)

Inferior goods YED<0

What does XED mean

Measures the degree of responsiveness of demand for one product when another product changes its price

XED formula

% change in quantity demanded for product X/ % change in price of product Y

What do the results of XED mean

XED>0 - Substitute XED>-1- Strong substitute - else a weak substitute

XED = 0 - Unrelated

XED < 0 - Complement XED>1 - Strong complement - else a weak complement