IB Economics: Cross Price Elasticity of Demand (XED) – Flashcards

Unlock all answers in this set

Unlock answers
question
*Cross price elasticity of demand (XED)*
answer
The responsiveness of demand for one good to a 1% change in the price of another good
question
Movement along the curve for one good causing a shift in demand for another good
answer
OK
question
*Substitutes*
answer
Two goods that satisfy the same need for a consumer, thus in competitive consumption XED=Positive Ex) bus and metro, black and blue pen, coffee and tea
question
*Complements (complementary goods)*
answer
Goods that are consumed jointly XED=Negative Ex) pencil and eraser, icing and cupcakes, shampoo and conditioner, coffee and sugar
question
*Closeness of a related good (substitutes and complements)*
answer
The stronger/closer the relationship between two goods, the further away from zero XED (absolute value). The weaker the relationship between two goods, the closer to zero XED (absolute value)
question
The revenues of a firm are not only impacted by a price change of their own good, but also by a price change of a substitute or complementary good, which can be produced by the same firm or a competitor
answer
ok
question
No relation/closeness No substitutability
answer
XED=0 vertical line Ex) eggs and petrol, sunglasses and chinese food, HCl and bread
question
Perfect substitutes
answer
XED=infinite horizontal
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New