Question

When price of tea in local cafe rises from 10 to 15 demand for coffee rises from 3000 to 5000 cups aday despite no change in coffee determine cross price elasticity and what kind of relations exist between the two goods

Answer 1

HeyBrother

Read carefully.....

We know that,

if the price of a good increases , demand of that good decreases.... its simple OK

Here, the good is Tea. When there is increase in price of good i.e. from 10 to 15, the demand for the good will also decrease (as you read above).

But the price of coffee is still 10 .

We know that , tea and coffee are substitute goods. When the price of tea increases , people will prefer for cheaper good i.e. coffee , so they will demand for coffee instead of tea.

This will lead to increase in demand of coffee when there is no change in price of coffee.

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