Question

(subject macroeconomics) answer both Question 1+2

1-China is rapidly changing , and tea - drinking habits are no exception . Chinese consumers have discovered coffee and some observers suggest that the fast pace of current day China is more compatible with other drinking than tea . With new and large populations now interested in coffee , the world demand ter coffee shifts rightward . This is good news for coffee growers . Based on scenario what will be the possible impaa on supply and price of coffee in Chinese economy ? (Short answer)

2-You have estimated that the cross price elasticity of your product to be 1.5Will you nee the price of your product to promote sales revenues . Explain . ( Short answer)

Answer 1

Ans 1 Demand for coffee increasing rapidly in the china therefore it is obvious supply would need to increase to fulfill the demand of coffee.if demand will remain the same and supply will not increase than it will lead to higher equilibirium price and price of coffee will rise due to increase demand of coffee.

Ans.2 cross price elasticity can be explained as responsiveness of quantity demanded towards product when price of another commodity changes.If cross price elasticity of product is 1.5 it is more than 1 that mean product has strong cross price elasticity if price of one product will increase demand of another product will increase therefore it require to decrease the price of product because consumer is elastic towards  price he is price sensitive .If price of your product will increase he will move towards other product.