Answer to Question #222838 in Economics for Lee

Question

If the cross elasticity of demand between two goods is negative, what does it mean?

Answer 1

The negative cross-price elasticity of demand refers to complementary goods (co-benefits). These are benefits that are shared. For example, shoes and shoe polish are complementary goods. An increase in the price of shoes causes a decrease in demand for them, which, in turn, will reduce the demand for shoe polish. Consequently, with a negative cross-elasticity of demand, with an increase in the price of one good, the consumption of another good decrease. The greater the complementarity of goods, the greater the absolute value of the negative cross-price elasticity of demand.