Question

Cups of coffee and donuts are complements. assume both have elastic demand. suppose exceptionally good weather increases the harvest of the coffee bean crop. show the effect of the huge harvest on the market for coffee bean

Answer 1

Answer: Price of coffee beans falls and quantity of coffee beans rises.

Explanation:

Exceptionally good weather increases the harvest of the coffee bean crop. This leads to an increase in the supply of coffee beans, shifting the supply curve of coffee beans to the right. The price of coffee beans falls while the quantity of coffee beans sold rises.  

Fall in the price of coffee beans will lead to an increase in the supply of coffee cups leading to a fall in the price of coffee cups as well. Quantity of coffee cups rises.

Since, coffee cups and donuts are complements, fall in the price of coffee beans will lead to a rise in the demand for donuts, leading to a rise in the price of donuts and quantity of donuts sold.