📚 Learning Guide
Cross-Price Elasticity of Demand
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If the cross-price elasticity of demand between coffee and tea is negative, this implies that an increase in the price of coffee will lead to an increase in the quantity demanded for tea.

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Answer

Cross-price elasticity of demand measures how the quantity demanded of one good changes when the price of another good changes. If the cross-price elasticity between coffee and tea is negative, it means that coffee and tea are complementary goods. This means that when the price of coffee goes up, people might buy less coffee, and as a result, they will buy more tea instead because they often consume them together. For example, if coffee becomes more expensive, someone who usually drinks both might decide to buy more tea to enjoy with their breakfast instead of coffee. Thus, a negative cross-price elasticity indicates that when the price of one item rises, the demand for its complementary item increases.

Detailed Explanation

When the price of coffee goes up, people might buy more tea instead. Other options are incorrect because This answer suggests that higher coffee prices lead to less tea demand.

Key Concepts

Cross-Price Elasticity of Demand
Complementary Goods
Substitutes
Topic

Cross-Price Elasticity of Demand

Difficulty

medium level question

Cognitive Level

understand

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