Cross-price Elasticity of Demand (CED)

Per (Tse), cross price elasticity of demand (CED) measures how much the quantity demand of a good responses to a change in the price of a related good.

Complements: have negative cross price elasticity. (e.g: cars and petrol).

Substitutes: have positive cross-price elasticity (e.g: Pepsi and Coke).

Complements example: petrol vs cars: if the price of cars rises -> the demand for cars and petrol falls, and therefore the price for petrol falls whilst the price for cars has risen!

Substitutes example: Pepsi vs Coke: if the price of Pepsi rises -> the demand for Pepsi will fall, and consumers will switch to Coke instead. The demand for Coke will rise and so will the price.

Work cited:
Tse, Harry. “Lecture-3 Equilibrium Elasticity.” 2025.