Cross Elasticity of Demand (XED)

XED Calculation

XED: Complements, Substitutes & Unrelated Goods

FOR COMPLEMENTARY GOODS

• Suppose there’s a decrease in the price of iPhone apps, good B​, what does that mean for the %​ change in price of good B​ on the bottom of our formula? it will be negative

• And if the price of good B​ falls, for complements, the quantity demanded of good A​ will increase

• And so if consumers demand more iPhones, good A​, %​ change in quantity demanded of good A​ will be positive

• So, the top of our formula, the %​ change in Qd​ of good A​ is positive, the bottom, the %​ change in price of good B​ is negative, so overall our XED​ will be: negative overall

FOR SUBSTITUTES

• If the price of Samsung, good B​, goes up, %​ change in price of good B​ will be Positive.

• And if the price of good B​ rises, for substitutes, the quantity demanded of good A​ will increase