Cross Elasticity

Cross elasticity measures how the demand for one product changes in response to a change in the price of another product. If the price of Product A increases and the demand for Product B also increases, they are substitute goods (like butter and margarine). Conversely, if the demand for Product B decreases when the price of Product A rises, they are complementary goods (like printers and ink). This concept helps businesses understand how related products influence each other’s sales, guiding pricing and marketing strategies based on how customers view these products in relation to each other.