A manufacturer of coffee makers increases the retail price of their machines by 25%. Consequently, the monthly quantity demanded of compatible coffee pods decreases from 5,000 5,000\,5,000 packs to 4,000 4,000\,4,000 packs, ceteris paribus.
What is the cross elasticity of demand (XED) between coffee makers and coffee pods, and how are these two goods related?
XED=−0.8XED = -0.8XED=−0.8; they are complements.
XED=+0.8XED = +0.8XED=+0.8; they are substitutes.
XED=+1.25XED = +1.25XED=+1.25; they are substitutes.
XED=−1.25XED = -1.25XED=−1.25; they are complements.
