If the cross-price elasticity of demand between two goods is positive, what does this indicate about the relationship between the two goods in terms of price sensitivity and market equilibrium?

If the cross-price elasticity of demand between two goods is positive, it means that when the price of one good increases, the demand for the other good also increases. This indicates that the two goods are substitutes for each other, meaning that consumers can replace one with the other. For example, if the price of coffee rises, people might buy more tea instead, as they see it as a similar option. This relationship affects market equilibrium because as the demand for one good rises due to the price change of the other, it can lead to shifts in supply and demand curves, ultimately affecting prices and quantities in the market. Understanding this helps businesses and economists predict how changes in pricing will impact consumer behavior and overall market dynamics.