Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Pastries and coffee are complementary goods, so an increase in pastry prices decreases the demand for coffee.
B
Coffee is a substitute for pastries, so an increase in pastry prices increases the demand for coffee.
C
The increase in pastry prices has no effect on coffee demand, as they are unrelated.
D
Higher pastry prices lead to higher overall consumer spending, increasing coffee demand.
Understanding the Answer
Let's break down why this is correct
Answer
Cross-price elasticity of demand measures how the quantity demanded of one good changes in response to the price change of another good. In this case, when the price of pastries goes up, people buy fewer pastries and also less coffee, indicating that pastries and coffee are complementary goods. This means they are often consumed together, so if one becomes more expensive, the demand for the other decreases. For example, if a customer usually buys a coffee with a pastry but finds the pastry too expensive, they might skip both. Thus, the negative relationship between the price of pastries and the demand for coffee shows a negative cross-price elasticity, meaning as the price of one rises, the demand for the other falls.
Detailed Explanation
Pastries and coffee are complementary goods. Other options are incorrect because This answer suggests that coffee is a replacement for pastries; This option says pastries and coffee are unrelated.
Key Concepts
Cross-Price Elasticity of Demand
Complementary Goods
Substitutes
Topic
Cross-Price Elasticity of Demand
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.