Question

Cups of coffee and donuts are complementary. Both have inelastic demand. A hurricane destroys half of the coffee bean crop. Use appropriately labeled diagrams to answer the following questions:
a.what happens to the price of coffee beans?

b. What happens to the price of a cup of coffee? What happens to the total expenditure on cups of coffee?

c.What happens to the price of a cup of donuts? What happens to the total expendiure on donuts?

Answer 1

Explanation:

a.what happens to the price of coffee beans?

In this case, when there is a phenomenon like a hurricane that destroys half the harvest, the supply of coffee beans consequently decreases, the quantity decreases and the price increases.

b. What happens to the price of a cup of coffee? What happens to the total expenditure on cups of coffee?

When the price of the main input for the production of coffee cups increases and the supply decreases, it appears as an increase in the price of a cup of coffee and a decrease in the amount of coffee cups available on the market.

As they have an inelastic demand, coffee cups with a higher price correspond to an increase in total coffee expenses.

c.What happens to the price of a cup of donuts? What happens to the total expendiure on donuts?

In this case, donuts and coffee are complementary, so when there is an increase in the price of coffee and a decrease in the quantity demanded, there is also a decrease in the demand for donuts. So if the demand for donuts decreases, their price also decreases and the total expenditure on donuts decreases.