Cross Elasticity of Demand

Cross elasticity of demand compares how the demand of one product varies with the price of another product.

$\text{XED} =\frac{\%\Delta \text{QD of Product A}}{\%\Delta \text{P of Product B}}$

<---- -2 ---- -1 ----- 0 ----- 1 ----- 2 ------>
      Complimentary    |       Substitutes    

Complimentary Goods

When XED is negative, the two goods are complimentary.

Strong Compliments - Bike + Bike Pump (e.g -2) Weak Compliments - Steak and rice (e.g -0.2)

Substitutes

When XED is positive, the two goods are substitutes (in competition)

Close Rivals - Iphone vs Samsung (e.g 2.5) Weak Rivals - Apples and oranges (e.g -0.4)