B. For tea, we would anticipate a positive cross elasticity of demand compared to coffee, but a negative cross elasticity for cream.
The cross elasticity of demand, also known as the cross-price elasticity of demand, quantifies the relationship between the quantity desired for one commodity and the price of another good, ceteris paribus.
Price increases for replacement products will result in higher demand or positive cross-price elasticity whereas price increases for complementary products will cause decreased demand or negative cross-price elasticity. Products that are unrelated have no cross-price elasticity.
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Complete Question: 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.
