Question

Lorena considers coffee and tea to be substitutes. Therefore, the cross elasticity of demand between coffee and tea for Lorena must be:

Answer 1

Answer:

Positive ,

A positive cross elasticity of demand means that two goods are substitutes.

Explanation:

The cross elasticity of demand for substitute goods is always positive in light of the fact that the demand for one good upsurges when the price for the substitute good increases. For instance, if the price of coffee rises, the quantity demanded for tea (a substitute brew) increases as consumers switch to a more affordable yet substitutable alternative. This is mirrored in the cross elasticity of demand formula as well. Both the numerator (% change in the demand of tea) and denominator (the price of coffee) show positive escalations.