Tea and coffee are substitutes. Lets regularise that teatime is heartfelt A and coffee is good B. If the price of coffee move by, say, 10% ceteris paribus, because one would expect coffee to set about relatively more popular at the expense of the demand for tea. The demand for tea might fall by, say, 5%. utilize the mandate above, we can calculate the cross price elasticity:
Briefly, the price of coffee falls, so the demand for tea falls. This is a positive relationship, as is true for all pairs of goods that are substitutes. If the cross price elasticity of demand is positive therefore the deuce goods in question leave behind be substitutes.
Tea and scrape are complements. Sugar is a complement to a form of tea (for some people, anyway!). Assume that swag is good A and tea is good B. If the price of tea brutish by, say, 10% ceteris paribus, then one would expect the demand for tea to parent. This should cause the demand for sugar to rise, although not everyone has sugar in their tea, and if they do the quantities are not exactly massive, so the rise in demand for sugar is likely to be a lot smaller than the rise in demand for tea. Lets say that the demand for sugar rises by 2%.
Using the formula, we deplete:
Put briefly, the price of tea falls, so the demand for sugar rises. This is a negative relationship, as is true for all pairs of goods that are complements. If the cross price elasticity of demand is negative then the two goods in question will be complements.
What will happen to the demand for sugar when the price of cinema admissions changes, ceteris paribus? absolutely nothing, I should think. The two goods are completely unrelated. Using the formula:
If the cross price elasticity of demand is zero then the two goods in question will be entirely unrelated (or independent).
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