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Question
Microeconomics
Posted 6 months ago

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 BB
(C) Product C
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Answer from Sia
Posted 6 months ago
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: Exy=%ΔQx%ΔPy 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.

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