In 2001, export prices of coffee in Ethiopia fell by half from 79 cents per pound in 2000 to 39 cents

Economics Jan 19, 2021

In 2001, export prices of coffee in Ethiopia fell by half from 79 cents per pound in 2000 to 39 cents. If the demand for Ethiopian coffee is assumed to be price inelastic, the fall in price will cause:

a. no change in total revenue.

b. a rise in the total revenue of coffee growers.

c. an increase in the profitability of growing coffee in Ethiopia.

d. a fall in the total revenue of coffee growers.

Expert Solution

Answer: D

If demand is inelastic, the percent change in quantity demanded will be lower than the percent change in price. This means that when prices fall, quantity demanded won't change as much in percent terms. Since total revenue is price multiplier by quantity, a price decrease when demand is inelastic will cause total revenue to fall.

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