If the cross-price elasticity of demand between goods X and Y is 1, which of the following must be true?
A) Both goods have unit elastic supply.
B) An increase in the price of good X leads to a decrease in the quantity demanded of good Y.
C) They are substitutes.
D) A percent change in the price of good X is matched by an equal change in the price of good Y.
E) They are both normal goods.

The cross elasticity of demand is a measure of how responsively consumers purchase more of one good when the price of another good increases. The calculation for this indicator, also known as cross-price elasticity of demand, involves dividing the percentage change in the amount demanded of one good by the percentage change in its price.

Substitute Goods : Due to the fact that demand for one commodity rises as the price of its alternative rises, the cross elasticity of demand for substitute goods is always positive. For instance, if coffee prices rise, consumers will move to tea, a beverage that is both less expensive and interchangeable, increasing the demand for tea.

Businesses set pricing for the sale of their products using the cross elasticity of demand. Because there is no cross-elasticity of demand to take into account, goods without substitutes can be sold for greater prices. The intended level of demand and the related price of the good are instead determined by analyzing incremental price changes to goods with substitutes. Complementary products are also deliberately priced based on the cross elasticity of demand. For instance, printers might be sold at a loss with the expectation that demand for related products, like printer ink, will rise in the future.

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