What is true about substitute goods in terms of cross-price elasticity of demand?

Substitute goods have a positive cross-price elasticity of demand, which means that when the price of one good increases, the demand for the other good also increases. This relationship occurs because consumers tend to switch from a more expensive good to a similar, more affordable alternative when prices rise.

For instance, if the price of coffee goes up, many consumers may choose to purchase tea instead, leading to an increase in the quantity demanded for tea. The positive value of the cross-price elasticity reflects this direct relationship: as the price of one good changes, the quantity demanded of the substitute good changes in the same direction.

In contrast, negative cross-price elasticity indicates complementary goods, where an increase in the price of one good leads to a decrease in the demand for another. A zero value would suggest that the goods are independent, meaning that a price change in one good does not affect the other. The notion that cross-price elasticity is irrelevant does not correctly address the relationship between substitute goods. Understanding these principles is vital for analyzing consumer behavior and market dynamics.