Question

Identify & explain the concept from the given illustration.

At Amulya Café, the demand for tea increased by 5% due to a 10% rise in the price of coffee.

Answer 1

Concept: Cross elasticity of demand

Explanation:

1. Cross elasticity refers to a change in quantity demanded of one commodity due to a change in the price of other commodity. 
2. At Amulya Café, a 10% rise in the price of coffee resulted in increase in the quantity demanded of tea by 5% as tea and coffee are substitute goods. Hence, this illustration is related to the concept of ‘cross elasticity of demand.’