What does a positive E xy value indicate about two goods?

A positive E xy value represents the cross-price elasticity of demand between two goods. When this value is positive, it indicates that an increase in the price of one good leads to an increase in the quantity demanded of the other good. This relationship signifies that the two goods are substitutes for each other.

For example, if the price of coffee rises and consumers buy more tea instead, it demonstrates that coffee and tea can be utilized in place of one another, confirming their status as substitute goods. Substitutes are typically used in similar ways or satisfy similar needs, allowing consumers to switch from one to the other based on their relative prices.

In contrast, a negative E xy would indicate that the goods are complements, as a rise in the price of one would decrease the quantity demanded of the other. A value of zero suggests that the goods are unrelated, and the classification of normal goods pertains to individual goods rather than the relationship between different goods, making those options less relevant in the context of cross-price elasticity.