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 ⋮ Cross-price elasticity of demand: The cross-price elasticity of demand measures the responsiveness of the quantity demanded for one good to a change in the price of another good. It is calculated using the formula: $E_{xy} = \frac{\% ext{ change in quantity demanded of good } x}{\% ext{ change in price of good } y}$. ‖ ‖ b ⋮ Interpretation of cross-price elasticity values: A positive value indicates that the goods are substitutes, as the price of one good increases, the demand for the other good also increases. A negative value indicates that the goods are complements, meaning that as the price of one good increases, the demand for the other good decreases. The greater the absolute value of the cross-price elasticity, the stronger the substitutability or complementarity. ‖ ‖ c ⋮ Identifying the most substitutable good: To find the most substitutable good for coffee made at home, we look for the product with the highest positive cross-price elasticity value. ‖ ∻Answer∻ ⚹ Product C ⚹ ∻Key Concept∻ ⚹ Substitutability and Cross-price Elasticity ⚹ ∻Explanation∻ ⚹ The most substitutable good for coffee made at home is the one with the highest positive cross-price elasticity value, which is Product C with an elasticity of $∞$. ⚹◊What is the relationship between the cross-price elasticity of demand and the substitutability of goods in Macro Economics?⍭ Generate me a similar question◊

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