# Cross elasticity of demand (XED)

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

## Cross elasticity of demand (XED)

Cross elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good.

Cross elasticity of demand (XED) is used to determine whether a good is a complimentary or substitute good.

### Substitute goods (XED is positive)

These are goods which provide a viable alternative to each other. They are similar goods that compete with each other.

E.g. Butter and Margarine

A rise in the price of butter (Good A) would cause an increase in demand for margarine.

### Complimentary goods (XED is negative)

These are goods which work in conjunction with each other.

E.g. Tennis racket and tennis balls

Complimentary goods work together. A fall in the price of a tennis racket would cause a increase in demand for tennis balls.

#### Strong Complements

Quick Fire Quiz

1. Define XED (2 marks)

2. State the formula for XED (2 marks)

3. State what type of goods XED analyses (2 marks)

• If positive
• If negative

4. Draw a diagram showing compliments and substitutes (4 marks)

5. Draw a diagram for weak and strong substitutes (4 marks)

6. Provide two examples of complimentary goods and two examples of substitute goods (4 marks)

Next Revision Topics:

A Level Economics Past Papers

Economics Tutor