Answer to Question #192363 in Microeconomics for reema

Question

The equilibrium price of teaset rose sharply last month, but the equilibrium quantity was the same as ever. Three people tried to explain the situation. Which explanations could be right? Explain your logic.

 

Amena: Demand increased, but supply was totally inelastic.

Shumaila: Supply increased, but so did demand.

Farrukh: Supply decreased, but demand was totally inelastic.

Answer 1

The supply of tea set decreased triggering the equilibrium price to rise , but demand was totally inelastic making the equilibrium quantity to remain the same.