Because many consumers choose between coffee and tea, the coffee and tea demand functions depend on both
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Because many consumers choose between coffee and tea, the coffee and tea demand functions depend on both prices. Suppose the demand curves for coffee and tea are Qc = 120 - 2pc + pt, Qt = 90 - 2pt + pc, where Qc is the quantity of coffee, Qt is the quantity of tea, pc is the price of coffee, and pt is the price of tea. These crops are grown in separate parts of the world, so their supply curves are not interrelated. We assume that the short-run, inelastic supply curves for coffee and tea are Qc = 45 and Qt = 30. Solve for the equilibrium prices and quantities. Now suppose that a freeze shifts the short-run supply curve of coffee to Qc = 30. How does the freeze affect the prices and quantities?
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