Question

Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50 percent. the quantity consumed of herbal tea declines immediately by 25 percent. everything else held constant, the:

Answer 1

The answer to this question that would complete the statement is “cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are complements.”

This means that a change in price of one product, directly affect the demand of the other product in an inversely fashion. In this case, as the price of honey increases, the demand for herbal tea decreases.