Refer to the graphs. Which of the following best represents a negative demand shock when prices are inﬂexible?
A) the shift from D2 to D3 in graph B
B) the shift from D2 to D3 in graph A
C) the shift from D2 to D1 in graph B
D) the shift from D2 to D1 in graph A

Question

Refer to the graphs. Which of the following best represents a negative demand shock when prices are inﬂexible?
A) the shift from D2 to D3 in graph B 
B) the shift from D2 to D3 in graph A 
C) the shift from D2 to D1 in graph B 
D) the shift from D2 to D1 in graph A

Quizplus · Accepted Answer

A negative demand shock would result in a decrease in demand, leading to a shift from D2 to D1 in either graph A or B. However, the question specifically asks for when prices are inflexible, which means that the shift in demand would not be accompanied by a change in price. Graph A shows a vertical supply curve, indicating that prices are perfectly inelastic, while graph B shows a downward sloping supply curve, indicating some responsiveness to price changes. Therefore, the best choice is D, the shift from D2 to D1 in graph A, as it represents a negative demand shock with no change in price.

Refer to the Graphs