📚 Learning Guide
Cross-Price Elasticity of Demand
easy

If the price of coffee increases, what is likely to happen to the demand for sugar, assuming coffee and sugar are complementary goods?

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Learning Path
Learning Path

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Choose the Best Answer

A

Increase

B

Decrease

C

No change

D

Become more elastic

Understanding the Answer

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Answer

When the price of coffee increases, the demand for sugar is likely to decrease because coffee and sugar are complementary goods. This means that people often use sugar when they drink coffee, so if coffee becomes more expensive, they might buy less coffee and, as a result, also buy less sugar. For example, if someone usually drinks two cups of coffee with sugar each day but finds coffee too expensive, they might decide to cut back to just one cup or stop drinking it altogether. This change in coffee consumption will lead to a decrease in the amount of sugar they buy. Therefore, the increase in coffee prices causes a drop in the demand for sugar because the two products are used together.

Detailed Explanation

When coffee costs more, people buy less coffee. Other options are incorrect because Some might think that if coffee is more expensive, people will buy more sugar to enjoy it; It may seem like the demand for sugar won't change, but it does.

Key Concepts

Complements
Topic

Cross-Price Elasticity of Demand

Difficulty

easy level question

Cognitive Level

understand

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