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Chapter 5: Q.15 (page 130)

If demand is elastic, will shifts in supply have a larger effect on equilibrium quantity or on price?

Short Answer

Expert verified

A supply shift will have a greater impact on quantity.

Step by step solution

01

Definition

The elasticity of Demand::

Elasticity is a microeconomic measurement of the relationship between changes in quantity demanded and pricing. It can be measured in terms of percentage changes or revenue changes.

02

Explanation

Quantity will be impacted more by a supply shift. With a flat or elastic demand curve, a shift in the supply curve affects the equilibrium quantity more than the price. When demand is completely elastic, changes in supply have no effect on the commodity's equilibrium price. The only thing it does is affect the equilibrium quantity. There could be an 'Increase in Supply' or a 'Decrease in Supply'.

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