ii) Cross Price Elasticity of Demand
The cross price elasticity measures the interaction in demand between different goods or services. it measures the sensitivity of demand for a particular good to changes in the price of another good:
When the cross price elasticity is positive, the two goods are substitutes (e.g. Coca-Cola and Pepsi). In other words, an increase in the price of one good will lead consumers to shift demand towards the relatively cheaper substitute good. When the cross price elasticity is negative the goods are complementary good (e.g. coffee and milk). In other words, an increase in the price of one good will negatively affect both its own demand and the demand of goods that are usually bought to accompany it.