A recent study estimated the demand for coffee as follows C (I 0 5 p T 0 15 ) (2 p C ) , where C is the quantity of coffee demanded, I is income, p T is the price of tea, and p C is the price of coffee Suppose I 25000, p T 0 75, and p C 1 25 Find the income elasticity for the demand for coffee Is coffee an inferior or a normal good Find the own price elasticity of demand for coffee Discuss how the price elasticity varies with p C and income Find the cross price elasticity for coffee Are coffee and tea gross substitutes or gross complements How can you find the compensated own price elasticity for coffee

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Question: A recent study estimated the demand for coffee as follows C = (I 0.5 p T 0.15 )/(2 + p C ) , where C

A recent study estimated the demand for coffee as follows C = (I^0.5p_T^0.15)/(2 + p_C) , where C is the quantity of coffee demanded, I is income, p_T is the price of tea, and p_C is the price of coffee. Suppose I = 25000, p_T = 0.75, and p_C = 1.25.

Find the income elasticity for the demand for coffee. Is coffee an inferior or a normal good?
Find the own price elasticity of demand for coffee. Discuss how the price elasticity varies with p_C and income.
Find the cross price elasticity for coffee. Are coffee and tea gross substitutes or gross complements?
How can you find the compensated own price elasticity for coffee?

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