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I am confused how to work out the XED the cross elasticity of demand.
are you meant to multiply or divide the difference between the price of A and the demand of B?
your help will be much appreciated!
Many thanks!Hiiiii
You’re supposed to divide the change in quantity in good A by the percentage change in price of good B.
Chap?Correct.
The cross elasticity of demand (XED) measures how the quantity demanded of one type of good changes in response to a price change in a different type good. It is calculated as:
% change in the demand for good A/% change in the price of good B.
The value of XED helps determine if two goods are:
1 Substitutes will have a positive XED). Eg the quantity of gas demanded is likely to rise if the price of electricity goes rises.
2 Complements (negative XED). Eg the quantity of ink cartridges demanded is likely to fall if the price of ink jet printers rises.
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