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Cross Elasticity of Demand - 31 |
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The quantity of any good that is demanded depends on the prices of
its substitutes and its complements.
How much demand for one good is effected by changes in the price of another, associated good is measured by the the first good's cross elasticity of demand |
The cross elasticity of of demand for substitutes is a positive number. After all, if the price of good B rises, then the demand for good A will also rise.
The cross elasticity of demand for complements is negative. If the price of good B rises, then the quantity of good A demanded will fall.