Definition
- Substitutes
- Substitutes are goods that can replace each other to some extent, so a higher price for one raises the quantity demanded of the other and the cross elasticity is positive.
Example
Can you think of an example of substitutes?
The price of tea rises 10 per cent and the quantity of coffee demanded rises 6 per cent as some tea drinkers switch: a cross elasticity of +0.6.
Test yourself
Can you name the six types of good you can label from income and cross elasticity?