The sign of the cross-price elasticity of demand holds useful information; it tells us whether the goods are substitutes or complements. The size of the cross-price elasticity tells us the strength of the effect of a price change of one good on demand for the other good.

   Unfortunately, there isn't a useful graphical approach to illustrating cross-price elasticity of demand. This is because two markets are involved. A price changes in one market and the demand curve shifts in the other.

   Suppose the price of gasoline increases. How might this affect the demand for tires, and how strong would the effect be? The cross-price elasticity of demand would tell us both. Clearly, gasoline and tires are complements, since they are consumed together. Therefore, the cross-price elasticity will be negative.

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