Types Of Cross Elasticity of Demand
There are basically two types of cross elasticity of demand, which are as follows:
I) Positive Cross Elasticity of Demand ( Exy>o):
The increase in price of a commodity (say X) leads to the increase in quantity demanded for another commodity (sayY) it is called positive cross elasticity of demand. This holds true for substitute goods like tea and coffee, coke & pepsi, etc. In this case, the demand curve will be upward sloppy as shown in the figure below.
In the above figure, quantity demanded for Y goods increases from Q1 to Q2 with the rise in price of X goods from P1 to P2. This shows that there is positive relationship between quantity demand for Y goods & price of X goods .
II) Negative Cross Elasticity of Demand ( Exy<o):
The increase in price of a commodity (say X) leads to the decrease in quantity demanded for another commodity (sayY) it is called negative cross elasticity of demand. This holds true for complimentary goods like petrol and bike, pen and ink, etc. In this is case, the demand curve will be upward sloppy as shown in the figure below.
In the above figure, quantity demanded for X goods decreases from Q2 to Q1 with the rise in price of Y goods from P1 to P2. This shows that there is inverse relationship between quantity demand for X goods & price of Y goods .