If the cross elasticity of demand is positive, what relationship do the two goods have?

When the cross elasticity of demand is positive, it indicates that an increase in the price of one good leads to an increase in the quantity demanded of another good. This situation typically arises when the two goods are substitutes. Substitutes are products that can replace each other in consumption, meaning that if consumers face a rise in price of one option, they will likely shift their purchasing behavior towards the other option, resulting in higher demand for it.

For example, if the price of coffee rises, consumers might buy more tea as a substitute, thus increasing the quantity demanded for tea. This relationship is essential in understanding how the demand for one good can affect the demand for another in the market.