Flashcards on Understanding Economic Elasticity
Understanding Economic Elasticity: A Student's Guide
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Cross-Price Elasticity of Demand
16 cards
Card 1
Question: What does the cross-price elasticity of demand (XED) measure?
Answer: It measures how responsive the quantity demanded of one product is to a change in the price of another product, assuming all other factors remain cons
Card 2
Question: What is the formula for the cross-price elasticity of demand (XED)?
Answer: XED = % change in quantity demanded of product A ÷ % change in price of product B.
Card 3
Question: What does a positive XED sign indicate?
Answer: It indicates that the two goods are substitutes: an increase in the price of one leads to an increase in the demand for the other.
Card 4
Question: Provide a real-world example of substitute goods mentioned in the text.
Answer: If the price of Coca‑Cola rises, the demand for Pepsi will likely increase; in a food stall market, a price hike at an Indian stall might boost demand
Card 5
Question: What does a negative XED sign indicate?
Answer: It indicates that the two goods are complementary: an increase in the price of one leads to a decrease in the demand for the other.
Card 6
Question: Provide an example of complementary goods mentioned in the text.
Answer: If the price of a smartphone contract rises, the demand for apps and internet services might decrease; if cinema ticket prices go up, the demand for p
Card 7
Question: What does an XED greater than 1 mean?
Answer: It means that demand is cross-price elastic: the quantity demanded of one good responds more than proportionally to the change in the price of the oth
Card 8
Question: What does an XED less than 1 (in absolute value) mean?
Answer: It means that demand is cross-price inelastic: the quantity demanded responds less than proportionally to the change in the price of the other good.
Card 9
Question: What does an XED equal to zero indicate?
Answer: It indicates that there is no relationship between the two products; a change in the price of one does not affect the demand for the other.
Card 10
Question: Before calculating XED, what practical advice is given?
Answer: Try to decide if the goods appear to be substitutes or complements to check if your arithmetic result makes sense.