#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
For some pairs of goods, X
, when the price of Y
rises, more of good X
is demanded. That is, the cross-price elasticity of demand is positive. Those goods are defined to be substitutes .
Substitutes are defined empirically. If the cross-price elasticity of two goods is positive, they are substitutes, irrespective of whether someone would consider them “similar.”