Cross Elasticity of Demand
Definition
Measures the responsiveness of the quantity demanded of one good (X) to a change in the price of another good (Y). Formula: XED = % Change in QD of X / % Change in Price of Y. Positive XED → substitutes; Negative XED → complements.
Example
"If the price of Pepsi rises by 10% and demand for Coca-Cola rises by 8%, XED = +0.8 (substitutes). If the price of cars rises and demand for petrol falls, they are complements (negative XED)."