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# Kindly solve... (eco)

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 Ance Philip Admin Exe (MBA ) IPCC 2013 [ Scorecard : 74] Posted On 12 June 2012 at 19:28 Tea and Coffee are perfect substitute of each other, given the price of Tea and Coffee being Rs. 100 and Rs. 200 per kg. a consumer is prepared to buy 3 kg. of each. If the price of tea remains the same and the price of coffee rises to Rs. 400 per kg. the demand for tea goes to 6 kg and that of coffee falls to 1 kg. The elasticity of substitution between Tea and Coffee is a) 1 b) 4 c) 5 d) 3 Ashok Sharma abccc [ Scorecard : 158] Posted On 12 June 2012 at 19:54 answer is (a)...Coz the increase in quantity of tea and increase in price of coffee both are increased by 100%.........sooo ultimately the answer is 1....i.e. it is the good is elastic Tejaswi Kasturi student-cpt [ Scorecard : 402] Posted On 12 June 2012 at 22:44 elasticity of substitution is different from cross elasticity of demand which is 1. For the above example if the products are perfect substitutes, then the utility curve will be a straight line with formula 0.8x+1.2y = 6 the marginal rate of substitution for the two substittes is 0. as such the elasticity of substitution is infinte.  if you want to learn more about elasticity of substitution I recommend the following links Tejaswi Kasturi student-cpt [ Scorecard : 402] Posted On 12 June 2012 at 23:19 This presentation explains the elasticity of substitution very very well if any body is interested to learn Attached File : 805498 995685 indifference curves s05.ppt downloaded 107 times

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