If the cross elasticity of demand between goods A and B is negative,

• A. the demands for A and B are both price elastic.
• B. A and B are complements.
• C. the demands for A and B are both price inelastic.
• D. A and B are substitutes.

Answer: (B)

Cross elasticity of demand shows how much the quantity demanded of one good changes when the price of another good changes. A negative sign means the two goods are used together—when the price of the second good rises, the demand for the first falls because they are complements. For example, if the price of printers goes up, people buy fewer printers and also fewer ink cartridges. This is different from substitutes, where a price rise in one good leads to more of the other being bought (a positive cross elasticity). So a negative cross elasticity indicates that the goods are complements, not substitutes, and it doesn’t speak to how each good responds to its own price.