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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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