Cross elasticity of demand  In economics, the cross elasticity of demand or cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good, ceteris paribus. It is measured as the percentage change in quantity demanded for the first good that occurs in response to a percentage change in price of the second good. For example, if, in response to a 10% increase in the price of fuel, the demand for new cars that are fuel inefficient decreased by 20%, the cross elasticity of demand would be: formula_1. An increase in the price of fuel will decrease demand for cars that are not fuel efficient. A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two substitute products. For example, if products A and B are "complements", an increase in the price of B leads to a decrease in the quantity demanded for A. Equivalently, if the price of product B decreases, the demand curve for product A shifts to the right reflecting an increase in A's demand, resulting in a "negative" value for the cross elasticity of demand. The exact opposite reasoning holds for substitutes. In the example above, the two goods, fuel and cars (consists of fuel consumption), are "complements"; that is, one is used with the other. In these cases the cross elasticity of demand will be "negative", as shown by the decrease in demand for cars when the price for fuel will rise. In the case of perfect substitutes, the cross elasticity of demand is equal to positive infinity (at the point when both goods can be consumed). Where the two goods are "independent", or, as described in consumer theory, if a good is independent in demand then the demand of that good is independent of the quantity consumed of all other goods available to the consumer, the cross elasticity of demand will be "zero" i.e. if the price of one good changes, there will be no change in demand for the other good. When goods are substitutable, the diversion ratio, which quantifies how much of the displaced demand for product "j" switches to product "i", is measured by the ratio of the cross-elasticity to the own-elasticity multiplied by the ratio of product "i"s demand to product "j"s demand. In the discrete case, the diversion ratio is naturally interpreted as the fraction of product "j" demand which treats product "i" as a second choice, measuring how much of the demand diverting from product "j" because of a price increase is diverted to product "i" can be written as the product of the ratio of the cross-elasticity to the own-elasticity and the ratio of the demand for product "i" to the demand for product "j".