a) What would happen to the market demand for beer if the price of wine increase

Question

a) What would happen to the market demand for beer if the price of wine increased by 20%? You might want to distinguish between different types of beer. (Your answer should show you understand the concept of cross elasticity of demand.)

b) What would happen to the demand for fur coats if income went up by 20% What would happen to the demand for underwear if income went up by 20%. Again, you might want to distinguish different types of product within each catagory. (Your answers should reflect your knowledge of income elasticity of demand)

c) What would happen to the demand for fur coats if advertising for the product went up by 20% What would happen to the demand for underwear if advertising for the product went up by 20%. Again, you might want to distinguish different types of product within each catagory.

Explanation / Answer

a- now here we can say that beer and wine are substitutes for each other, so the cross price elasticity will be positive, means that there will be a positive effect of price increase of one product on the quantity demand for the other substitute product.

so if prices of wine increased then the quantity of beer will also be increased.

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