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    Elasticity (XED) Practice

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    Sandy Saddler
    This document defines and provides examples for calculating cross-price elasticity of demand (XED), which measures the responsiveness of the quantity demanded of one good to a change in the price of another good. XED can be positive or negative. A positive XED means the goods are substitutes, while a negative XED means the goods are complements. The document provides practice problems calculating XED and identifying if goods are substitutes or complements.

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    Elasticity (XED) Practice

    Uploaded by

    Sandy Saddler
    112 views2 pages
    This document defines and provides examples for calculating cross-price elasticity of demand (XED), which measures the responsiveness of the quantity demanded of one good to a change in the price of another good. XED can be positive or negative. A positive XED means the goods are substitutes, while a negative XED means the goods are complements. The document provides practice problems calculating XED and identifying if goods are substitutes or complements.

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    Elasticity (XED) Practice

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    This document defines and provides examples for calculating cross-price elasticity of demand (XED), which measures the responsiveness of the quantity demanded of one good to a change in the price of another good. XED can be positive or negative. A positive XED means the goods are substitutes, while a negative XED means the goods are complements. The document provides practice problems calculating XED and identifying if goods are substitutes or complements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    112 views2 pages

    Elasticity (XED) Practice

    Uploaded by

    Sandy Saddler
    This document defines and provides examples for calculating cross-price elasticity of demand (XED), which measures the responsiveness of the quantity demanded of one good to a change in the price of another good. XED can be positive or negative. A positive XED means the goods are substitutes, while a negative XED means the goods are complements. The document provides practice problems calculating XED and identifying if goods are substitutes or complements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    CROSS-PRICE ELASTICITY OF DEMAND (XED)

    IB Economics
    Think back to learning the five things that will change demand for a product (i.e. create a whole
    new demand curve). One of those determinants was a change in the price of a related good, both
    substitutes and complements.

    SUBSTITUTE REVIEW

    Substitutes =

    ↑ price Good Y = _____ demand Good X

    ↓ price Good Y = _____ demand Good X

    COMPLEMENT REVIEW

    Complements =

    ↑ price Good Y = _____ demand Good X

    ↓ price Good Y = _____ demand Good X

    If changing the price of Good Y leads to a change in demand for Good X, then we want to be able
    to measure how elastic the change in demand for Good X is.

    The formula to calculate the XED coefficient is a modification of the PED formula:

    XED = percentage change in quantity demanded of Good X


    percentage change in price of Good Y

    In the case of cross-price elasticity, the value of XED may be positive or negative. With PED, we
    ignored the value, but with XED the sign will tell us the relationship between the two goods.

    Using the substitute/complement review above to help you, indicate below what a positive/
    negative result for XED will indicate.

    If XED is positive, the goods are _________________________________.

    If they are closely related, they will have…

    If they are less closely-related, they will have….

    If XED is negative, the goods are _________________________________.

    If they are closely related, they will have…

    If they are less closely-related, they will have….

    If XED = 0, then the goods are _____________________________.

    Complete practice problems 1 through 4 on p.54 of your text.


    XED PRACTICE
    IB Economics

    1. The price of good M increases by 15% causing a fall in the quantity demanded of good N by
    5%.

    a. Calculate the XED for the two goods.

    b. Identify the relationship between the two goods

    c. Identify an example of two goods that may demonstrate this relationship.

    2. The price of good A falls from $25 to $20, leading to an increase in the quantity of good B
    demanded from 600 per week to 1000 per week.

    a. Calculate the XED for the two goods.

    b. Identify the relationship between the two goods

    c. Identify an example of two goods that may demonstrate this relationship.

    3. Assume the XED for tennis balls and tennis rackets is -0.8. Calculate the change in the
    quantity of tennis rackets demanded if the price of a can of tennis balls increases from $4 to
    $5. What type of goods are these?

    4. Suppose the price of coffee increases from $10 per kilogram(kg) to $12 per kg and the
    amount of tea purchased increases from 1500 kg to 1650 kg. What is the XED? What type of
    goods are these?

    5. Suppose the price of pencils increases from $1.00 per pencil to $1.30 and the quantity of
    erasers purchased falls from 1000 erasers to 800. What is the XED? What type of goods
    are these?

    6. The price of charcoal rises from $10 to $13 and the quantity of charcoal grills bought falls
    from 55 to 50. What is the XED? What type of goods are these?

    7. The price of chicken increases from $5 per pound to $6 per pound and the quantity of beef
    sold increases from 100 tons to 125 tons. What is the XED? What type of goods are these?

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