3. Problems and Applications Q6 The quantity of coffee sold fell sharply last mo

Question

3. Problems and Applications Q6 The quantity of coffee sold fell sharply last month, while the price remained the same. Five people suggest various explanations: Paolo: Supply decreased, but demand was unit elastic. Sharon: Supply decreased, but it was perfectly inelastic. Van Supply decreased, but demand was perfectly elastic. Amy Demand decreased, but supply was perfectly elastic. Carlos: Demand decreased, but supply decreased at the same time. Who could possibly be right? Check all that apply. O Paolo Sharon Van Amy Carlos

Explanation / Answer

When the supply decrease the demand was perfectly elastic i.e. a straight horizontal line. In such a scenario the price will not change but the supply curve will shift to the left suggesting a decrease in the quantity.

The second situation is when the demand is perfectly elastic i.e. a horizontal line. the result will be the .same. and third when both the demand and supply have an equal decrease.

The answer is Van, Amy and Carlos are right.

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