Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound.She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound.Sandra's cross-price elasticity of demand for coffee and milk is
A) 0.82, and they are substitutes.
B) -0.82, and they are complements.
C) 1.22, and they are substitutes.
D) -1.22, and they are complements.

Question

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. Here, as the price of coffee decreases, the quantity of milk demanded increases, indicating they are complements, resulting in a negative cross-price elasticity.

Sandra Purchases 5 Pounds of Coffee and 10 Gallons of Milk