Question

An early frost destroys 20% of the coffee bean crop. If the supply and demand for coffee beans are both relatively inelastic, and the frost does not impact the quality of the coffee beans that make it to market.

Required:
What will most likely occur to the equilibrium price and quantity of coffee beans?

Answer 1

Option C, Price will increase, quantity will decrease

Step-by-step explanation:

The options for the given question are

(A) Price and quantity will both increase

(B) Price and quantity will both decrease

(C) Price will increase, quantity will decrease

(D) Price will decrease, quantity will increase

(E) Price will not change, quantity will decrease

Solution

Inelastic demand of a product means that the price (high or low) of the product does not affect the demand.

Since the frost destroys the crop, then there are probabilities of variation in the price of coffee (price will rise). Price will be increased to fetch the loss because of frost.

Price will increase and quantity will decrease.

Hence, option C is correct