Asksia AI LOGO

Sia

Question
Macroeconomics
Posted 3 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 B
(C) Product C
Sign in to unlock the answer
Answer from Sia
Posted 3 months ago
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: Exy=% change in quantity demanded of good x% change in price of good yE_{xy} = \frac{\% \text{ change in quantity demanded of good } x}{\% \text{ 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 .

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Upgrade to Asksia Pro

Join a AskSia's Pro Plan, and get 24/7 AI tutoring for your reviews, assignments, quizzes and exam preps.

Unlimited chat query usages
Strong algorithms that better know you
Early access to new release features
Study Other Question