What does a negative value for cross-price elasticity of demand (XED) signify?
Understand the Problem
The question is asking for the interpretation of a negative value in the context of cross-price elasticity of demand (XED), specifically what it signifies about the relationship between two goods.
Answer
A negative XED signifies that the goods are complementary.
The final answer is a negative value for cross-price elasticity of demand (XED) signifies that the goods are complementary.
Answer for screen readers
The final answer is a negative value for cross-price elasticity of demand (XED) signifies that the goods are complementary.
More Information
When two goods are complementary, an increase in the price of one leads to a decrease in the demand for the other, and vice versa. Examples include printers and ink cartridges, smartphones and apps, or consoles and video games.
Tips
A common mistake is to confuse complementary and substitute goods. It's important to remember that negative XED indicates complements and positive XED indicates substitutes.
Sources
- Understanding Cross Price Elasticity of Demand: Definition, Formula ... - sawtoothsoftware.com
- Cross Price Elasticity of Demand (XED) - A-Level Economics - studymind.co.uk
- Cross Price Elasticity: Definition, Formula for Calculation, and Example - investopedia.com
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