Question

Coffee and cakes are complements in consumption.Both products have inelastic demand.Assume that a drought in Brazil destroys half of coffee . bean crops.Use diagrams to answer the following:

1. What would happen to the coffee bean market
2. What would happen to the price of coffee and total expenditure of coffee
3. What would happen to the price of cakes and total expenditure of cakes.

Answer 1

1. The supply of coffee beans would decrease.

2. The price of coffee would increase and total expenditure of coffee would increase, because the demand is inelastic.

3. The price of cakes would decrease, as the demand for them would decrease, and total expenditure of cakes would decrease.