Compared to coffee, we would expect the cross elasticity of demand for
A)tea to be negative, but positive for cream.
B)tea to be positive, but negative for cream.
C)both tea and cream to be negative.
D)both tea and cream to be positive.

Question

Quizplus · Accepted Answer

Tea and coffee are substitutes, so the cross elasticity of demand between them is positive (if the price of coffee increases, the demand for tea increases). Cream is a complement to coffee, so the cross elasticity of demand is negative (if the price of coffee increases, the demand for cream decreases).

Compared to Coffee, We Would Expect the Cross Elasticity of Demand