Questions: Question 6 Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium quantity and the equilibrium price both are unchanged. c. the equilibrium price increases, and the equilibrium quantity is unchanged. d. buyers' total expenditure on the good is unchanged.

The answer is c: the equilibrium price increases, and the equilibrium quantity is unchanged.

Explanation for each option:

a. The equilibrium quantity decreases, and the equilibrium price is unchanged.

• This is incorrect. When demand is perfectly inelastic, the quantity demanded does not change regardless of price changes. Therefore, the equilibrium quantity remains unchanged, not decreased.

b. The equilibrium quantity and the equilibrium price both are unchanged.

• This is incorrect. A decrease in supply typically leads to an increase in price when demand is perfectly inelastic, as the quantity demanded remains constant.

c. The equilibrium price increases, and the equilibrium quantity is unchanged.

• This is correct. With perfectly inelastic demand, the quantity demanded does not change with price changes. Therefore, when supply decreases, the price increases to maintain the same quantity.

d. Buyers' total expenditure on the good is unchanged.

• This is incorrect. With a perfectly inelastic demand, a decrease in supply leads to a higher price, which increases buyers' total expenditure since the quantity remains constant.

In summary, when demand is perfectly inelastic and supply decreases, the equilibrium price increases while the equilibrium quantity remains unchanged.