Answer to Question #319159 in Microeconomics for noor

Question

* If the price of coffee (Good 2) rises from Rs. 45 per to Rs. 55 per pack and as a result the consumer’s demand for tea (Good 1) increases from 600 to 800 packs then calculate cross elasticity of demand of tea for coffee

Answer 1

Cross Elasticity of Demand =$\frac{ increase.in. quantity. of. tea}{ increase .in. the. price. of .coffee}$

$= \frac{(800-600)}{800+600} / \frac{(55-45)}{(55+45)} = 1.4285$