Question

The price of coffee fell sharply last month, while the quantity sold remained the same. Five people suggest various explanations:Rajiv: Demand decreased, but it was perfectly inelastic.Simone: Demand decreased, but supply was perfectly inelastic.Yakov: Demand decreased, but supply increased at the same time.Ana: Supply increased, but demand was perfectly inelastic.Charles: Supply increased, but demand was unit elastic.Who could possibly be right? Check all that apply. Rajiv Simone Yakov Ana Charles

Answer 1

Ana and Yakov provide the viable explanations. Ana's scenario of increased supply with highly inelastic demand and Yakov's scenario of decreased demand coupled with an increase in supply both could explain the sharp fall in coffee prices while maintaining the same quantity sold.

Step-by-step explanation:

Understanding the situation where the price of coffee fell sharply last month while the quantity sold remained the same requires examining concepts of demand elasticity and supply shifts. In the context given, two potential explanations are viable:

• Ana: Suggests that supply increased while demand was perfectly inelastic. Since the demand for coffee is highly inelastic (quantity demanded doesn't change much with a change in price), a rightward shift in the supply curve could explain a significant price drop with no change in quantity sold.
• Yakov: Proposes that demand decreased but was accompanied by an increase in supply. These simultaneous shifts could also result in a lowered price while maintaining the same quantity sold, assuming that the increase in supply was proportionately larger than the decrease in demand.

The explanations of Rajiv, Simone, and Charles do not align with the observed market outcome. A perfectly inelastic demand, as suggested by Rajiv, wouldn't see a price change, and unit elastic demand suggested by Charles would result in a proportional change in quantity, which didn't occur. Simone's explanation of perfectly inelastic supply contradicts the falling price.

Answer 2

Simone, Yakov and Ana could possibly be right.

Step-by-step explanation:

The price of fell but the quantity remained the same.

If an elastic demand shifts the demand curve will move to the left. This would cause both prices as well as quantity to decline. So Rajeev's statement is not correct.

This can be because of the inelastic supply curve. If the supply curve is an inelastic vertical line then a fall in demand will not affect quantity while the price will fall. So, Simone's statement can be right.

If there is a decline in the demand curve will shift to the left. Now, if there is an increase in the supply by the same amount the price will fall but quantity will remain the same. So, Yakov's statement is right.

If supply increased but the demand curve is perfectly inelastic, the rightward shift in the supply curve will cause the price to fall but quantity will remain the same. So, Ana's statement is right.

if the demand curve is unitary elastic, an increase in supply will cause the price to fall and quantity to increase. So, Charles' statement is not correct.