Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the...

Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use clearly labeled diagrams to answer the following questions:

a. What happens to the price of coffee?

b. What happens to the price of a cup of coffee? What happens to total revenue for cups of coffee?

c. What happens to the price of donuts? What happens to total revenue for donuts?

Draw your own graphs on a piece of paper (don't download a graph from the internet).
Clearly label all axes and lines.

Solutions

Expert Solution

Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop.

a. Destruction in The Coffee Bean crop is likely to decrease the supply of coffee Bean. This is going to increase the price of Coffee Bean and because the input prices increased there will be a decrease in the supply of coffee. As the supply curve shifts to the left there is an increase in the price and a decrease in quantity.

b. Consumer the coffee has now been expensive which means the price of a cup of coffee will increase. Because the demand is inelastic, increase in the price will increase revenue.

c. Coffee and doughnuts are complements due to which now when there are fewer cups of coffee there will be fewer doughnuts. The demand for doughnuts decreases and this shifts the demand curve to the left. This decreases the price of doughnuts. Decline in price will decrease revenue.

Rahul Sunny answered 1 year ago

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