If commodities X and Y are substitute, their cross elasticity of demand will be

Step 1: Analyze the question The question asks about the sign of the cross elasticity of demand (XED) when two goods, X and Y, are substitutes.

Step 2: Explain the concept Cross elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good:

XED = % change in quantity demanded of X ÷ % change in price of Y

The sign tells you the relationship between the goods:

• Substitutes (e.g., Indomie and Supreme noodles, or Peak milk and Cowbell milk): XED is positive
• Complements (e.g., bread and butter, or car and petrol): XED is negative
• Unrelated goods: XED is zero

Step 3: Work through the solution Suppose the price of Y rises:

1. Y becomes more expensive, so consumers buy less of it.
2. They switch to the substitute, X.
3. The demand for X increases.

The price of Y went up (positive change) and the quantity demanded of X went up (positive change). A positive divided by a positive gives a positive value.

Step 4: Check the options

• A. One: not a requirement. The value can be any positive number.
• B. Positive: correct.
• C. Negative: this applies to complements.
• D. Zero: this applies to unrelated goods.

Answer: B. Positive

Exam tip: Remember "Substitutes are Same direction (positive); Complements are Contrary (negative)." Both prices and demand move together for substitutes, so the sign is plus.