Question

Problems and Applications Q6 The price of coffee fell sharply last month, while the quantity sold remained the same. Five people suggest various explanations: Sean: Demand decreased, but it was perfectly inelastic. Yvette: Demand decreased, but supply was perfectly inelastic. Bob: Demand decreased, but supply increased at the same time. Cho: Supply increased, but demand was perfectly inelastic. Eric: Supply increased, but demand was unit elastic. Who could possibly be right

Answer 1

• Yvette
• Bob
• Cho

Step-by-step explanation:

Yvette was right because a perfectly inelastic supply means that the supply remains the same regardless of the price. With the supply remaining the same even though prices fell, enough people still bought regardless of the decrease in price that the quantity sold remained the same.

Bob was also right because the scenario painted is similar to the above. The supply increased when demand decreased which meant that even though there were less people demanding, there was more coffee being supplied such that quantity remained the same.

Cho was also correct because a perfectly inelastic demand means that the demand does not change in response to a change in price. With coffee being perfectly inelastic, people will buy the same quantity regardless so quantity sold remained the same.