A

4c. Cross elasticity of demand

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. \n

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 \n

  • If you are given percentages you use:

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

\n

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.

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