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Chapter 5: Q.18 (page 130)

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

Short Answer

Expert verified

Demand will result in a higher price.

Step by step solution

01

Definition

Inelastic supply :

Inelastic supply refers to a situation in which the percentage change in quantity supplied is smaller than the percentage change in price. It suggests the supply curve is steeper and the slope is higher. It demonstrates that supply elasticity is less than one.

02

Explanation

A movement in the supply curve will modify the equilibrium price more than the equilibrium quantity with a vertical, or inelastic, demand curve. If demand rises while all other factors remain constant, the equilibrium price will rise, and also the quantity provided will climb also. When demand falls, the equilibrium price falls, and therefore the amount provided decreases.

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Most popular questions from this chapter

Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

When someone’s kidneys fail, the person needs to have medical treatment with a dialysis machine (unless or until they receive a kidney transplant) or they will die. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that the supply of such dialysis machines will primarily determine the price

The equation for a demand curve is P = 48 – 3Q. What is the elasticity in moving from a quantity of 5 to a quantity of 6?

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

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?
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