Cross price elasticity indicates

A. how sensitive quantity demanded is to changes in price.

B. whether a good is a normal good or an inferior good.

C. whether two goods are substitutes or complements.

D. all of the above.

The correct answer to the given question is option C. whether two goods are substitutes or complements.

The cross price elasticity for a given product is determined by dividing the percentage change in its quantity demanded with the percentage change in the price of a related good. If the signage of cross price elasticity of demand is negative then the two related goods are called as complements and if the signage of cross price elasticity of demand is positive, the two related goods are called as substitutes. An example of substitutes are Coca-cola and Pepsi while an example of complements are automobiles and automobile tires.

A good may be classified as a normal good or an inferior good on the basis of signage of income elasticity of demand. On the other hand, the sensitivity of quantity demanded to change in price is determined by using the price elasticity of demand.