quantity of coffee consumed. When a major frost hit the Brazilian coffee crop in 1994, coffee supply shifted to the

left with an inelastic demand curve, leading to much higher prices. Conversely, when Vietnam entered the world

coffee market as a major producer in the late 1990s, the supply curve shifted out to the right. With a highly inelastic

demand curve, coffee prices fell dramatically. Figure 5.8 (a) illustrates this situation.

Elasticity also reveals whether firms can pass higher costs that they incur on to consumers. Addictive

substances, for which demand is inelastic, are products for which producers can pass higher costs on to

consumers. For example, the demand for cigarettes is relatively inelastic among regular smokers who are

somewhat addicted. Economic research suggests that increasing cigarette prices by 10% leads to about a 3%

reduction in the quantity of cigarettes that adults smoke, so the elasticity of demand for cigarettes is 0.3. If
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