The cross-price elasticity of demand measures the responsiveness of the quantity demand of one good to change in the price of another good.

It is calculated as changes in quantity demanded of Good X divided by changes in the price of good Y.

If the coefficient of the cross price elasticity of demand is negative, it means that the demand for good *X* will increase as the price of good *Y* decreases and vice versa.

Therefore, we can conclude the two goods compared are **complementary goods**.

Conversely, if the coefficient of the cross price elasticity of demand is positive, it suggests that the demand for good *X* will increase as the price of good *Y *increases and vice versa.

Therefore, we can conclude that the two goods compared are **Substitute goods**.

To conclude, the difference between positive and negative cross-price elasticity of demand is that positive cross-price elasticity of demand signifies **substitute goods** whereas negative cross-price elasticity of demand denotes **complementary goods.**

## Post a Comment

## Post a Comment