cross elasticity of demand

Cross elasticity of demand measures how the quantity demanded of one product responds to changes in the price of a different product. If two products are substitutes, an increase in the price of one may lead to a rise in demand for the other—demonstrating a positive cross elasticity. Conversely, if two products are complements (like coffee and sugar), a price increase for one can decrease demand for the other, indicating a negative cross elasticity. This concept helps businesses understand consumer behavior and make pricing and marketing decisions based on relationships between goods.