Suppose you are told that the price elasticity of demand for soft drinks is 2.0; the cross price elasticity of demand of soft drinks for iced tea is 1.5; the cross price elasticity of demand of soft drinks for popcorn is -2.0; and the income elasticity of demand for soft drinks is 1.2. Use this information to answer the following question.
- Describe verbally the relationship between soft drinks and popcorn. In your statement describe how you know these two goods have this relationship.
- Describe verbally the relationship between soft drinks and iced tea. In your statement describe how you know these two goods have this relationship.
- Are soft drinks a normal or an inferior good given the above information? Explain your answer fully.