Question

The quantity of coffee sold fell sharply last month, while the price remained the same. Five people suggest various explanations:

Lorenzo: Supply decreased, but demand was unit elastic.
Neha: Supply decreased, but it was perfectly inelastic.
Sam: Supply decreased, but demand was perfectly elastic.
Teresa: Demand decreased, but supply was perfectly elastic.
Andrew: Demand decreased, but supply decreased at the same time.

Who could possibly be right? Check all that apply.

__Lorenzo
__Neha
__Sam
__Teresa
__Andrew

Answer 1

Sam

Tereza

Andrew could be right, but it depends on the magnitude changes,

Step-by-step explanation:

Lorenzo is wrong because if supply decreased and the demand was unit elastic, then the equilibrium quantity will fall but the price will increase.

Neha is also wrong because a perfect inelastic supply is a vertical line parallel to the y-axis, then if this supply decreases (shifts to the left) the equilibrium quantity will decrease but the price will increase.

Sam is right because a perfectly elastic demand is a horizontal line parallel to the x-axis. and if supply decreases (or increases) the price will remain the same but the equilibrium quantity will decrease ( or if demand increases, it will increase).

Teresa is also right because a perfect elastic supply looks the same as a perfect elastic demand, then if demand decreases (or increases) price will remain the same and the equilibrium quantity will decrease (or if demand increases, it will increase).

Andrew could be right but depends on the magnitude change in demand and supply. If both (supply and demand) decrease in the same proportion, the equilibrium quantity will decrease, and the price could remain the same. But, it depends on the magnitude shifts.