Donuts and coffee are complements. When the price of a donut increases, the demand for coffee _______ And the cross elasticity of demand for coffee with respect to the price of a donut is _______.
A) decreases; positive
B) decreases; negative
C) increases; negative
D) increases; positive

Question

Quizplus · Accepted Answer

When the price of a donut increases, the demand for coffee decreases because they are complements; people buy fewer donuts, so they also buy less coffee. The cross elasticity of demand for coffee with respect to the price of a donut is negative, indicating that as the price of donuts increases (a complement), the demand for coffee decreases.

Donuts and Coffee Are Complements