Asked by MPENDULO DOMINIC FAKUDZE on Jun 25, 2024
Verified
Compared to coffee, we would expect the cross elasticity of demand for
A) tea to be negative, but positive for cream.
B) tea to be positive, but negative for cream.
C) both tea and cream to be negative.
D) both tea and cream to be positive.
Cross Elasticity
A measure of how the quantity demanded of one good responds to a change in the price of another good, indicating the substitutability or complementarity between the two goods.
Coffee
A popular beverage made from roasted and ground beans of the Coffea plant, consumed for its stimulating effects.
Tea
Tea is a beverage made by pouring hot or boiling water over cured or fresh leaves of the Camellia sinensis plant, traditionally consumed hot but also enjoyed cold.
- Identify the function of cross elasticity of demand in evaluating the connection between products.
Verified Answer
NS
Nestor SanchezJun 30, 2024
Final Answer :
B
Explanation :
Tea and coffee are substitutes, so the cross elasticity of demand between them is positive (if the price of coffee increases, the demand for tea increases). Cream is a complement to coffee, so the cross elasticity of demand is negative (if the price of coffee increases, the demand for cream decreases).
Learning Objectives
- Identify the function of cross elasticity of demand in evaluating the connection between products.