Cross Price Elasticity and Income Elasticity Interactive Widget
Markets are interconnected webs, not isolated islands
A price change in one good ripples through related markets — substitutes pull demand away when their rival's price rises, complements drag demand down when their partner's price climbs. Drag the slider to explore how cross-price elasticity reveals whether two goods are rivals or partners.
Positive XED identifies substitute goods like Coke and Pepsi where consumers switch between alternatives when relative prices change. When Coke's price rises by 10% and Pepsi demand increases by 8%, the XED of +0.8 confirms they're substitutes — buyers flee the more expensive option for its cheaper rival. The stronger the substitutability, the higher the positive XED value. Perfect substitutes would have infinite XED as any price difference causes complete switching, while weak substitutes have XED values closer to zero reflecting limited consumer willingness to switch between them.
Know This
Positive XED means substitute goods like Coke and Pepsi where one price rise increases demand for the other, negative XED means complementary goods like cars and petrol where one price rise decreases demand for the other, YED greater than 1 identifies luxury goods whose demand grows faster than income like restaurant meals.