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microbook_3e-page74 - of $2 per donut is 0 . 875 and at a...

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Demand Curves in the Case where Donuts are a Gross Complement to Coffee Once again, a decrease in the price of donuts, increases the quantity of donuts that I demand. Specifically, when the price is $2, I demand 25 donuts, but when the price is $1, I demand 45 . 68. Once again, we can sketch out the demand curve by connecting those two points on a graph. Does that demand curve look less elastic to you than the one in the case where donuts are neither a gross complement nor a gross substitute for coffee? It should. The price elasticity of demand for donuts at a price
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Unformatted text preview: of $2 per donut is 0 . 875 and at a price of $1 per donut its 0 . 864. Since donuts are a gross complement to coffee, my consumption of coffee rises from 25 to 27 . 16 when the price of donuts falls from $2 to $1. Graphically, the demand curve for coffee shifts outward when the price of donuts falls (because Im demanding more coffee at a price of $2). The elasticity of demand for coffee with respect to the price of donuts equals 0 . 125 at a price of $2 per donut and it equals 0 . 115 at a price of $1 per donut. Page 74...
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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