Cross Elasticity of Demand XED Cross Elasticity of

Cross Elasticity of Demand (XED)

Cross Elasticity of Demand (XED) Cross elasticity of demand measures the responsiveness of the demand for one good in relation to a change in the price of another. For example, if the price of Android phones (Good A)falls by 10%, demand for the i. Phone (Good B)may fall by 5%. The XED of Android in relation to i. Phone will be +0. 5. https: //www. youtube. com/watch? v=8 LR 33 pax. E 7 I

Cross Elasticity of Substitute products Product X Month Product Y Demand (units purchased) Price total per unit Demand (units purchased) June 145 10 1450 147 11 1617 July 196 10 1960 150 11 1650 Q 2 – Q 1 _____ 1960 – 1450 _____ 0. 352 _____ 0. 020 Py 2 – Py 1 1650 – 1617 +17. 6 Price per unit

Close Substitute Goods If two goods are close substitutes, there will be a high cross-elasticity of demand. Example, if the price of Sainsbury’s flour increases 10%, demand for Robin Hood flour may increase 20%. To consumers, there is little difference between the two goods. Therefore, the cross elasticity of demand is +2. 0

Weak Substitute Goods If goods are weak substitutes, there will be a low cross elasticity of demand. Example, if the price of The Chronicle increases 10%, the demand for the Guyana Times may only increase 1%. Therefore, the cross elasticity of demand is 0. 1. These two newspapers are weak substitutes. If the price of margarine increases 10%, demand for butter may rise 2%.

Perfect Substitutes Two goods are perfect substitutes if the utility consumers get from one good is the same as another. For example a using Buckleys or Red star rubs. The satisfaction from using Buckleys Rub is very similar to using Red Star as produced by a different company. A 4 paper from Office World gives same utility as A 4 paper from WHSmiths. Therefore, in theory, if one good was more expensive, there would be no demand as people would buy the cheaper alternative.

Complementary Products Complementary Products: products that are sold separately but that are used together, each creating a demand for the other, for example, computers and computer pr ograms. Or Cars and Gasoline… Computers Computer Programs Cars Gasoline

Cross Elasticity of Complementary products Product X Month Demand (units purchased) Product Y Price Demand (units purchased) Price June 1450 147 1617 July 1300 140 1680 Q 2 – Q 1 _____ 130 – 145 _____ - 0. 097 _____ 63 Py 2 – Py 1 1680 – 1617 - 0. 012