(a) Positive Cross Elasticity (Substitutes)
(b) Negative Cross Elasticity (Complementary)
(c) Zero Cross Elasticity (Unrelated goods)
(a) Positive Cross Elasticity : Positive cross elasticity of demand takes place in the case of substitute such as tea and coffee, pepsi and coke. If the price of coffee rises it will lead to an increase in the demand for tea. Similarly a fall in price of coffee will cause a decrease in demand for tea. Thus price and demand move in the same direction in case of substitute.
(b) Negative Cross Elasticity : Negative cross elasticity takes place in the case of complementary goods. It takes place when a change in the price of (petrol) one complementary good brings about a change in demand for (car) another commodity in the opposite direction.
For e.g. a rise in petrol prices may lead to fall in demand for car and vice-versa.
(c) Zero Cross Elasticity: Zero cross elasticity of demand takes place in case of unrelated goods. For instance a rise or fall in price of car may not affect the demand for books.
