XED

• This is the responsiveness of demand for one product (A) to the change in price of another product (B)
• Substitutes are where XED>0 : an increase in the price of good B will increase demand for good
• Complementary goods are where XED<0 : an increase in the price of good B will decrease demand for good A. One example is DVDs and DVD players
• Firms need to be aware of their competition and those producing complementary goods. They need to know how price changes by other firms will impact them so they can take appropriate action