Price of one affects the demand of another.

Price of one affects the demand of another only in 2 cases:

• Substitute goods
• Complementary goods

 Which measures the response of demand on the bsis of price of these substitute and complentary goods is called cross price elasticity of demand

     Cross price elasticity shows that how price of one good affects the demand of the other good.

Cross price elasticity = %tage change in quantity demanded of good 1/%tage change in price of good 2.

For an example: pepsi and coco cola are substitude goods, if price of coca cola increases the the demand of pepsi also increases because people will shift from coca cola to pepsi therefore the cross price elasticity remain positive when it comes to substitute goods.

        But in complementary goods the case is reversed, increase in price of a good will lead to decrease in quantity demanded of another good.

 For example: computer and software are complementary goods, if price of computer rises the demand for software will fall, this shows an inverse relation so in this case the cross price elasticity will be negative.