Problem
The price of wheat in Langrala is currently $10 per pound and there are 100 pounds of wheat produced and sold each week. The price of tea is $8 per pound and there are 60 pounds of tea produced and sold each week.
The price of tea then drops to $6 per pound. In addition, the quantity of tea produced and sold each week increases to 80 pounds per week and the quantity of wheat produced and sold each week increases to 120 pounds.
• Calculate the cross price elasticity of demand for wheat.
• Explain how the cross price elasticity of demand for wheat indicates whether tea and wheat are complements or substitutes.