Economics

The following information is available for three goods – Tea, Coffee and Sugar:

income elasticity of demand for Tea: +0.2

cross price elasticity of demand between Tea and Sugar: -0.8

cross price elasticity of demand between Tea and Coffee: +1.2

Within a framework of demand and supply, graphically demonstrate the following situations and identify what happens to the equilibrium price and quantity of Tea:

a) the price of Coffee increases. [2 marks]

b) there is a reduction in consumer income. [2 marks]

c) the Government imposes a per unit tax on Tea producers at the same time as a health scare identifies a risk associated with excessive Tea consumption. [3 marks]

d) the price of Sugar increases at the same time as Tea producers adopt a more efficient production technology. [3 marks]

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