Final answer:
The cross-price elasticity of demand measures the percentage change in the quantity demanded of one good in response to a percentage change in the price of another good, with substitute goods having positive and complements having negative cross-price elasticities.
Step-by-step explanation:
The cross-price elasticity of demand measures the responsiveness of quantity demanded of one good to a change in the price of another good. It quantifies the percentage change in the quantity of good A demanded as a result of a percentage change in the price of good B. This economic indicator is crucial for understanding consumer behavior, and it helps businesses make pricing and inventory decisions.
There are two primary types of relationships between goods that can be analyzed using cross-price elasticity: substitute and complement goods. Substitute goods have positive cross-price elasticities of demand, meaning that if the price of good B increases, the demand for good A also increases, as consumers switch from the more expensive good to its substitute. Conversely, complement goods have negative cross-price elasticities, meaning that an increase in the price of good B will lead to a decrease in the demand for good A, as these goods are often used together.