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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.

03

Step 3. Conclusion:

Thus, when demand is inelastic, shifts in supply will have a greater impact on equilibrium price.

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Most popular questions from this chapter

The ability of firms to enter and exit a market over time means that, in the long run,

a. the demand curve is more elastic.

b. the demand curve is less elastic.

c. the supply curve is more elastic.

d. the supply curve is less elastic.

If demand is elastic, how will an increase in price change total revenue? Explain.

Transatlantic air travel in business class has an estimated elasticity of demand of 0.62, while transatlantic air travel in economy class has an estimated price elasticity of 0.12. Why do you think this is the case?

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

Define the price elasticity of demand and the income elasticity of demand.

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