A boutique drinks company, Elixir Co., monitors the market for its signature organic cold-brew coffee (Product CCC). The income elasticity of demand (YED\text{YED}YED) for Product C C\,C is +1.2, and the cross-price elasticity of demand (XED\text{XED}XED) between Product C C\,C and a competitor's premium iced matcha (Product MMM) is +0.8.
Over the next quarter, average household income in the region rises by 5.0%, while the competitor reduces the price of Product M M\,M by 10.0%. Assuming other factors remain constant and the two effects are additive, what is the expected net percentage change in the quantity demanded of Product CCC?
−2.0%-2.0\%−2.0%
+14.0%+14.0\%+14.0%
−8.0%-8.0\%−8.0%
+2.0%+2.0\%+2.0%
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.