The price of coffee rose sharply last month, while the quantity sold remained the same. Five people suggest various explanations
:
A. Leonard: Demand increased, but supply was perfectly inelastic.
B. Sheldon: Demand increased, but it was perfectly inelastic.
C. Penny: Demand increased, but supply decreased at the same time.
D. Hoaward: Supply decreased, but demand was unit elastic.
E. Raj: Supply decreased, but demand was unit elastic.
Who could possibly be right? Use graphs to explain your answer.
A. Leonard: Demand increased, but supply was perfectly inelastic.
B. Sheldon: Demand increased, but it was perfectly inelastic.
C. Penny: Demand increased, but supply decreased at the same time.
D. Hoaward: Supply decreased, but demand was unit elastic.
E. Raj: Supply decreased, but demand was unit elastic.
Who could possibly be right? Use graphs to explain your answer.
1 answer:
Answer:
The correct answer is option A and C.
Explanation:
There is an increase in the price of coffee while the quantity demanded remained the same. This can happen if the demand for coffee increased but the supply of coffee remained perfectly inelastic.
The supply of a product is said to be perfectly inelastic when there is no change in supply even of the price of product changes. The supply curve in this situation is a vertical line.
An increase in a perfectly inelastic demand will cause both price and quantity to increase.
If demand increases and supply decreases by the same amount the price of coffee will increase but the quantity will remain the same.
A decrease in supply while demand was unit elastic will cause the price to increase and quantity to decrease.
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