Suppose that you own a co?ee shop, and have estimated demand for co?ee as
Q = 80 − 12P + 0.005I + 3Pt − 7Ps
where P is the price of co?ee, I is consumer income, Pt is the price of tea and Ps is the price ofscones. You are selling 100 cups of co?ee for $2 each. Tea costs $5 and scones cost $3 each.
1. What is the own-price elasticity for co?ee? Is co?ee elastic or inelastic?
2. What is the income elasticity for co?ee? What type of good is co?ee?
3. What is the cross-price elasticity between co?ee and tea? What does this tell us about their relationship?
4. What is the cross-price elasticity between co?ee and scones? What does this tell us about their relationship?