ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -This means that e.g. a 10% increase in the price of one product reduces the quantity demanded of another product by 20%; the products are complements and the cross price elasticity is elastic (because the effect on quantity demanded is greater than the change in price in percentages).

Detailed explanation-2: -Alternatively, the cross elasticity of demand for complementary goods is negative. As the price for one item increases, an item closely associated with that item and necessary for its consumption decreases because the demand for the main good has also dropped.

Detailed explanation-3: -We determine whether goods are complements or substitutes based on cross price elasticity-if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.

Detailed explanation-4: -Whereas, if the cross-price elasticity of demand is a negative value, the two goods or services would be complementary goods or services.

Detailed explanation-5: -A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two products are substitutes. If products A and B are complements, an increase in the price of B leads to a decrease in the quantity demanded for A, as A is used in conjunction with B.