Question

**Q1: If a 10 percent rise in the price of coffee
increases the quantity of tea demanded by 25 percent and decreases
the quantity of coffee demanded by 20 percent,**

**Calculate price elasticity of coffee**

**Q2:**

**Calculate the cross-elasticity of demand between coffee
and tea.**

Answer #1

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part A

**price elasticity of coffee= Percentage change in demand
of coffee/ percentage change in price of coffee**

**price elasticity of coffee= (-) 20%/ 10%**

**= (-)2**

**Absolute value is 2**

**price elasticity of coffeeis 2 .It represents price
elasticity of coffee is more elastic.**

**Part B)**

**cross-elasticity of demand between coffee and
tea=Percentage change in demand of tea/ percentage change in price
of coffee**

=**25%/ 10%**

**cross-elasticity of demand between coffee and
tea=2.5**

**cross-elasticity of demand between coffee and
tea=2.5.**

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