If a 4 percent increase in the price of good X causes a 12 percent increase in the quantity demanded of good Y, what does that imply?

The relationship between goods X and Y, illustrated by the statistics given, indicates that as the price of good X increases, the quantity demanded for good Y also rises significantly. This behavior is characteristic of substitute goods—items that can replace each other in consumption. When the price of one substitute rises, consumers tend to buy more of the other substitute as it becomes relatively more attractive.

In this scenario, the percentage increase in quantity demanded for good Y (12 percent) is in the same direction as the price increase of good X (4 percent), which establishes a direct relationship between the two goods. The cross-price elasticity of demand, which measures the responsiveness of the quantity demanded of one good to a change in the price of another good, is positive in this case. Specifically, since it is calculated as the percentage change in quantity demanded of good Y divided by the percentage change in price of good X, it yields a positive value, further confirming that the goods are substitutes.

Therefore, determining the relationship through this positive cross-price elasticity clearly shows that goods X and Y are substitutes.