XED measures the responsiveness of demand to a change in income - If the demand for food remained unchanged if income rose then XED would be 0.

How to calculate XED

• There are 2 ways to calculate XED depending on the information you are given

  • If you are given numbers you use -

XED = Px/Qy * ΔQy/ΔPx

• If you are given percentages you use:

% Change in quantity demanded of Good A / % Change in price of Good B

Positive and negative numbers

A substitute good will give a positive number. The closer to 0, the weaker the substitute is.

A complementary good will give a negative number. The closer to 0, the weaker the complement is.

• If the answer is 0, the two goods in question are said to be unrelated.