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Chapter 5: Q. 16 (page 130)

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

Short Answer

Expert verified

The larger effect will be on equilibrium price.

Step by step solution

01

Step 1.  Introduction

Elasticities of less than one show low price sensitivity and corresponds to inelastic demand.

02

Step 2. Explanation

Suppose there is a technological change in the market which causes the supply curve to shift to the right. If demand is inelastic, then due to a shift in the supply curve, the price of the commodity will reduce considerably as the supply increases. However, there will be a less impact on the quantities sold.

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