Economics Supply And Demand Questions Medium
The difference between a positive cross-price elasticity and a negative cross-price elasticity lies in the relationship between the prices of two goods and the quantity demanded of one good in response to a change in the price of the other good.
A positive cross-price elasticity indicates that the two goods are substitutes. This means that an increase in the price of one good leads to an increase in the quantity demanded of the other good. For example, if the price of coffee increases, the demand for tea may increase as consumers switch to the substitute good.
On the other hand, a negative cross-price elasticity suggests that the two goods are complements. This means that an increase in the price of one good leads to a decrease in the quantity demanded of the other good. For instance, if the price of hot dogs increases, the demand for hot dog buns may decrease as consumers are less likely to purchase both items together.
In summary, a positive cross-price elasticity indicates substitute goods, where an increase in the price of one good leads to an increase in the demand for the other good. Conversely, a negative cross-price elasticity suggests complementary goods, where an increase in the price of one good leads to a decrease in the demand for the other good.