Question

Problems & Applications (Ch 05) Problems and Applications 06 The price of coffee rose sharply last month, while the quantity sold remaired the same. Five people suggest various explanations: Yakow: Dermand increased, but suppy was perfectly inelastic. Ana: Demand increased, but it was perfectly inelastic. Chartes: Demand increased, but supoly decreased at the same time. Dina: Supply decreased, but dermand was unit elastic. Gilberto: Supply decreased, but demand was perfectly inelastic. who could possibly be right? Check all that apply. Yakow □Ana Charles Dina Gilberto Ot

Answer 1

Yakov, Charles.

When supply is perfectly inelastic, supply curve is vertical and fixed at a constant quantity. Increase in demand will shift demand curve rightward, increasing price but keeping quantity unchanged (Yakov definitely correct).

Higher demand shifts demand curve rightward, increasing both price and quantity. Lower supply shifts supply curve leftward, increasing price and decreasing quantity. So price will definitely increase. And, if rightward shift in demand curve is equal in magnitude to the leftward shift in supply curve, quantity will remain unchanged (Charles may be correct).