The price of coffee rose sharply last month, while the quantity sold remained th

Question

The price of coffee rose sharply last month, while the quantity sold remained the same. Five of the Big Bang Theory friends suggested various explanations.

Use the following table to identify who of the friends correctly explained the changes in the price and quantity of coffee.

Explanation

Correct?

Explanation

Correct?

Howard: Supply decreased, but demand was unit elastic. Raj: Supply decreased, but demand was perfectly inelastic. Leonard: Demand increased, but supply was perfectly inelastic. Penny: Demand increased, but supply decreased at the same time. Sheldon: Demand increased, but it was perfectly inelastic.

Explanation / Answer

Solution: Raj: Supply decreased, but demand was perfectly inelastic.

Explanation: When price of coffee increased the supply reduced, however even with the increased price the quantity sold remained the same thus the demand was perfectly inelastic. Perfectly inelastic means when the quantity supplied or demanded is unaffected by any change in price.

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