Here, If we suppose tea as good x and coffee as good y. Thus, the coefficient of cross elasticity is 2/3 which shows that the quantity demanded for tea increases 2% when the price of coffee rises by 3%.
elasticAvailability of Substitutes This means that coffee is an elastic good because a small increase in price will cause a large decrease in demand as consumers start buying more tea instead of coffee.
a) The cross-price elasticity of demand for doughnuts and coffee is equal to -1.5.
about 0.3The elasticity of coffee demand is only about 0.3; that is, a 10% rise in the price of coffee leads to a decline of about 3% in the quantity of coffee consumed.
An inelastic demand is one in which the change in quantity demanded due to a change in price is small. If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic.
According to Business Wire's “Coffee and Tea Global Market Report, 2020-30: COVID-19 Impact and Recovery” report, the total coffee and tea market is predicted to grow from $142.1 billion in 2019 to $148.5 billion in 2020, an annual growth rate of 4.6 percent.
Cross-Price Elasticity Formula Qx = Average quantity between the previous quantity and the changed quantity, calculated as (new quantityX + previous quantityX) / 2. Py = Average price between the previous price and changed price, calculated as (new pricey + previous pricey) / 2.
A positive cross elasticity of demand means that the demand for good A will increase as the price of good B goes up. This means that goods A and B are good substitutes. so that if B gets more expensive, people are happy to switch to A. An example would be the price of milk.
In the case of cross-price elasticity of demand, we are interested in the elasticity of quantity demand with respect to the other firm's price P'. Thus we can use the following equation: Cross-price elasticity of demand = (dQ / dP')*(P'/Q)
The demand for coffee is inelastic. People may not find good enough products to replace them with coffee. Coffee is just not a drink but a source of refreshment for many people. If they are substituting it for any other caffeinated source, they will look for something that serves them better.
The demand for alcoholic beverages in total is expected to be highly price inelastic because there are no close substitutes for alcoholic beverages. It is much more difficult to predict, a priori, the price elasticity of demand for beer, wine, and distilled spirits.