Cross elasticity of demand measures the responsiveness of the quantity demanded of one good ($X$) to a change in the price of another good ($Y$). Its greatest value is that its sign reveals the relationship between the two goods.

Interpreting the value

• Positive ($E_c > 0$): substitutes (tea & coffee) — a rise in $Y$'s price raises demand for $X$. Perfect substitutes give a very high value.
• Negative ($E_c < 0$): complements (car & petrol) — a rise in $Y$'s price cuts demand for $X$.
• Zero / near-zero: goods are independent / unrelated — a price change in one has no effect on the other (e.g. price of salt and demand for laptops).

The magnitude also matters: the larger the absolute value, the closer the relationship — a very high positive value means near-perfect substitutes, while a value close to zero means the goods barely affect each other.

Quick example

Price of coffee rises 10% and, as buyers switch, quantity of tea demanded rises 15%:

1. $E_c = \dfrac{+15\%}{+10\%} = +1.5$. …