Introduction to Cross Elasticity of Demand and Classification of Substitute and Complementary Goods

The video tutorial explains the concept of cross elasticity of demand, which measures how the demand for one product changes in response to the price change of another product. It covers the calculation of cross elasticity using a specific formula and discusses how to classify products as substitutes or complements based on their cross elasticity values. Substitute goods have a positive cross elasticity, while complementary goods have a negative one. The tutorial also highlights the graphical representation of these concepts and concludes with a summary of the key points.

What does the cross elasticity of demand help determine about two products?

• Whether they are durable or perishable

• Whether they are substitutes or complements

• Whether they are elastic or inelastic

• Whether they are luxury or necessity goods

How is elasticity generally defined?

• As the total revenue generated by a good

• As the responsiveness of a variable to changes in another variable

• As the change in price of a good

• As the supply of a good in the market

What is the formula for cross elasticity of demand?

• Change in price of A divided by change in demand of B

• Proportionate change in quantity demanded of A divided by proportionate change in price of B

• Total revenue of A divided by total revenue of B

• Supply of A divided by supply of B

What happens to the demand for a substitute good when the price of its counterpart increases?

• The demand for the substitute good becomes zero

• The demand for the substitute good increases

• The demand for the substitute good remains unchanged

• The demand for the substitute good decreases

How is the relationship between substitute goods represented graphically?

• By an inward shift in the supply curve

• By an outward shift in the demand curve

• By a vertical shift in the demand curve

• By a horizontal shift in the supply curve

What is the XED value for substitute goods?

• Greater than zero

• Equal to zero

• Undefined

• Less than zero

What happens to the demand for a complementary good when the price of its counterpart increases?

• The demand for the complementary good decreases

• The demand for the complementary good remains unchanged

• The demand for the complementary good becomes infinite

• The demand for the complementary good increases

How is the relationship between complementary goods represented graphically?

• By a horizontal shift in the demand curve

• By a vertical shift in the supply curve

• By an inward shift in the demand curve

• By an outward shift in the supply curve

What is the XED value for complementary goods?

• Equal to zero

• Undefined

• Greater than zero

• Less than zero

What does an XED value of zero indicate about two goods?

• They are substitutes

• They are complements

• They are perfectly elastic

• They are unrelated