In economics, the cross (or cross-price) elasticity of demand (XED) measures the effect of changes in the price of one good on the quantity demanded of another good. This reflects the fact that the quantity demanded of good is dependent on not only its own price (price elasticity of demand) but also the price of other "related" good.

The cross elasticity of demand is calculated as the ratio between the percentage change of the quantity demanded for a good and the percentage change in the price of another good, ceteris paribus:$${\displaystyle {\text{XED}}={\frac {\%{\text{ change in quantity demanded of good A}}}{\%{\text{ change in price of good B}}}}}$$The sign of the cross elasticity indicates the relationship between two goods. A negative cross elasticity denotes two products that are complements, while a positive cross elasticity denotes two products are substitutes. If products A and B are complements, an increase in the price of B leads to a decrease in the quantity demanded for A, as A is used in conjunction with B. 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. If A and B are substitutes, an increase in the price of B will increase the market demand for A, as customers would easily replace B with A, like McDonald's and Domino's Pizza.

The concept of "price elasticity of demand" originated by Alfred Marshall predicted relative changes between price and quantity. In the Cellophane case, Professor Stocking believed that a change in the price of one product will induce a price change of its rivalry in the same direction, so he firstly regarded that movement of two prices in the same direction explicitly reflects a high cross-price elasticity. However, during 1924–1940, du Pont cellophane prices moved independently from its perceived competitors' (waxed paper, vegetable parchment, etc.) price; independent price movements reflect noncompetitive pricing between cellophane and its rival products. Thus, Professor Stocking's emphasis on the same movement of prices was too rigid, as the price of cellophane changed induced by three factors:

In other words, the competitive relationship between two goods (cross-price elasticity) can not be simply concluded by price change, as price change arises from both cost and demand factors. Furthermore, instead of a high positive or low positive elasticity concluded by observing respective price change, cross-elasticity of demand should be either positive or negative to represent if there is a complementary or substitutive relationship between two goods.

Cross elasticity of demand of product B with respect to product A (η_BA):

${\displaystyle \eta _{BA}>0}$ implies two goods are substitutes. Consumers purchase more B when the price of A increases. Example: the cross elasticity of demand of butter with respect to margarine is 0.81, so 1% increase in the price of margarine will increase the demand for butter by 0.81%.

${\displaystyle \eta _{BA}<0}$ implies two goods are complements. Consumers purchase less B when the price of A increases. Example: the cross elasticity of demand of entertainment with respect to food is −0.72, so 1% increase in the price of food will decrease the demand for entertainment by 0.72%.

${\displaystyle \eta _{BA}=0}$ implies two goods are independent (a price change of good A is unrelated to demand change of good B), so changes in the price of product A have no effect on the demand for Product B. Example: bread and cloths .