Answer to Question #300404 in Microeconomics for Abigail

Question

 The price of coffee rose sharply last month, while the quantity sold remained the same. Five people suggest various explanations: Leonard: Demand increased, but supply was perfectly inelastic. Sheldon: Demand increased, but it was perfectly inelastic. Penny: Demand increased, but supply decreased at the same time. Howard: Supply decreased, but demand was unit elastic. Raj: Supply decreased, but demand was perfectly inelastic. Who could possibly be right? Use graphs to explain your answer.

Answer 1

Raj had the right argument. Supply decreased but demand was perfectly inelastic.

Where the change in price causes a relatively smaller proportion of change in quantity.