What does E xy signify in economic terms?

The designation E xy specifically refers to the concept of cross-price elasticity of demand. This measures the responsiveness of the quantity demanded for one good in relation to changes in the price of another good. When E xy is calculated, it indicates whether the two goods are substitutes or complements. If E xy is positive, it implies that as the price of one good increases, the quantity demanded for the other good also increases, indicating that they are substitutes. Conversely, if E xy is negative, an increase in the price of one good leads to a decrease in the quantity demanded of the other good, suggesting that the goods are complements.

Understanding this concept is crucial for analyzing how changes in market dynamics, such as pricing strategies or shifts in consumer preferences, can impact the demand for various goods in relation to one another.