Question

If frost in Florida reduces the quantity of vegetables sold by 20 percent and increases their retail price by 30 percent, one can conclude that: Multiple Choice the supply of vegetables has shifted to the left along an elastic demand curve. the supply of vegetables has shifted to the left along an inelastic demand curve. the demand has shifted to the right along a perfectly inelastic supply curve. the demand has shifted to the right along a perfectly elastic supply curve.

Answer 1

the supply of vegetables has shifted to the left along an inelastic demand curve.

Step-by-step explanation:

We need to determine the price elasticity of demand (PED) for vegetables:

PED = % change in quantity / % change in price = 20% / 30% = 0.67

PED = 0.67, it is price inelastic

When the supply decreases, that means that the supply curve shifts to the left. This leftward shift will decrease the quantity supplied at every price level. In this case, since the PED of vegetables is inelastic, then we can assume that the leftward shift of the supply curve was along a segment of the demand curve that is inelastic.

Answer 2

Answer: The supply of vegetables has shifted to the left along an inelastic demand curve

Explanation: The quantity of vegetables sold has been reduced by 20 percent, which simply means the aggregate market supply curve has experienced a drop/decrease and that is usually indicated by a complete shift of the supply curve to the left.

Furthermore, we can determine easily if the demand is elastic or inelastic, since the question has stated the percentage change in quantity demanded as 20% and the percentage change in price as 30%.

The coefficient of elasticity is calculated as

E = %change in quantity demanded/%change in price

E = 20/30

E =0.66

Since the coefficient of elasticity is less than 1, then it means demand is inelastic.