# Cross price elasticity of demand (XED)

## Cross price elasticity of demand and its determinants

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

- Movement along the curve for one good causing a shift in demand for another good

Determinants of XED:

- Substitute goods: positive value of XED
- Complementary goods: negative value of XED
- The absolute value of XED depends on the closeness of the relationship between the two goods. (Two goods are unrelated if XED =0)

## Applications of cross price elasticity of demand

Applications of XED:

- Firms on substitutes goods: low positive value?the better?increase price of the product
- Firms on complementary goods: high negative value?the better?increase price of the product