1. Rising world wholesale fair-trade coffee bean prices force the local Dunkin' Donuts franchise to raise its price of coffee from 89 cents to 99 cents a cup. As a result, management notices that donut sales fall from 950 to 850 a day. Shortly after the coffee price spike, the local Cinnabon franchise reduced its price on cinnamon rolls from $1.89 to $1.69. This resulted in a further decline in Dunkin' Donuts donut sales to 750 a day. What is the cross elasticity of demand for coffee and donuts, and are the two goods complements or substitutes?
2. According to a report from the Federal Trade Commission (FTC), in the first weeks of August 2003, gas price in Phoenix, Arizona jumped from $1.52 to $2.11 a gallon, roughly a 40% increase, due to a ruptured pipeline between Tucson and Phoenix. The pipeline normally brought 30% of Phoenix's fuel from a Texas refinery. During this period, Phoenix gas stations were able to buy gas from West Coast refineries at higher prices. By the end of the month, the rupture was repaired and prices returned to normal. During this three-week period of supply disruption, gasoline sales fell by 8%. What was the approximate price elasticity of demand for gasoline during this period?
3. Rising world wholesale fair-trade coffee bean prices force the local Dunkin' Donuts franchise to raise its price of coffee from 89 cents to 99 cents a cup. As a result, management notices that donut sales fall from 950 to 850 a day. Shortly after the coffee price spike, the local Cinnabon franchise reduced its price on cinnamon rolls from $1.89 to $1.69. This resulted in a further decline in Dunkin' Donuts donut sales to 750 a day. What is the cross elasticity of demand for Dunkin' Donuts donuts and Cinnabon cinnamon rolls, and are the two products complements or substitutes?