The cross-price elasticity of demand for coffee made at home in response to changes in the prices of four different products is given in the table below:
\begin{tabular}{ll}
Other good & Value of cross-price elasticity when the price of the other good changes \
\hline Product A & -50 \
Product B & $-\infty$ \
Product C & $\infty$ \
Product D & 0.5 \
Product E & 0
\end{tabular}

Which good is the most substitutable for coffee made at home?
Choose 1 answer:
(A) Product A
(B) Product $B$
(C) Product C

Question

The cross-price elasticity of demand for coffee made at home in response to changes in the prices of four different products is given in the table below:
\begin{tabular}{ll} 
Other good & Value of cross-price elasticity when the price of the other good changes \
\hline Product A & -50 \
Product B & $-\infty$ \
Product C & $\infty$ \
Product D & 0.5 \
Product E & 0
\end{tabular}

Which good is the most substitutable for coffee made at home?
Choose 1 answer:
(A) Product A
(B) Product $B$
(C) Product C

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Cross-Price Elasticity: Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It is calculated using the formula: $$ E_{xy} = \frac{\% \Delta Q_x}{\% \Delta P_y} $$ ‖ ‖ b ⋮ Analysis of Values: The table provides the cross-price elasticity values for different products when the price of another good changes. The values are: - Product A: -50 - Product B: $-\infty$ - Product C: $\infty$ - Product D: 0.5 - Product E: 0 ‖ ‖ c ⋮ Interpretation: A positive cross-price elasticity indicates that the goods are substitutes, while a negative value indicates that they are complements. The higher the positive value, the stronger the substitutability. ‖ ‖ d ⋮ Conclusion: Product C has the highest positive cross-price elasticity ($\infty$), indicating it is the most substitutable for coffee made at home. ‖ ∻Answer∻ ⚹ (C) Product C ⚹ ∻Key Concept∻ ⚹ Cross-price elasticity of demand ⚹ ∻Explanation∻ ⚹ Cross-price elasticity measures how the quantity demanded of one good responds to a price change in another good. A higher positive value indicates stronger substitutability. ⚹◊What impact would a decrease in the price of product D have on the demand for coffee made at home, based on the cross-price elasticity values provided?⍭ Generate me a similar question◊

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