Is the Coeffecient of Cross Elasticity an Appropriate Measure for the Closeness of Substitutes?
Authors of price theory texts usually state that the coeffecient of (price) cross elasticity of demand is a measure for the "closeness" of substitutes or complement: for the closeness of substitutes when the sign of the cross elasticity between the two commodities is positive, and for the closeness of compliments when the sign is negative. The main point the author wants to discuss is largely symmetrical for compliments and substitutes and it is more relevant for the latter. He will therefore develop his argument in terms of substitutes.
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