If tea and coffee are substitutes, the cross elasticity of demand for coffee with respect to the price of tea will be _______ and an increase in the price of tea will _______ the demand for coffee.
A) negative; decrease
B) negative; increase
C) positive; increase
D) positive; decrease

Question

Quizplus · Accepted Answer

When two goods are substitutes, the cross elasticity of demand is positive because an increase in the price of one (tea) leads to an increase in the demand for the other (coffee).

If Tea and Coffee Are Substitutes, the Cross Elasticity of Demand