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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

The shift in supply curve will change the equilibrium quantity more than the price.

Step by step solution

01

Step 1. Definition

Elasticity is a microeconomic measure of the connection between changes in quantity demanded and pricing. It can be measured by percentage changes or by looking at revenue change.

02

Step 2. Explanation

When the demand curve is elastic it means it would be relatively flatter. The equilbrium quantity and price, as we know, is determined by interaction of demand and supply. With flatter curve, when supply shifts, a change in price would cause more than proportionate change in quantity. So, the larger effecct would be on equilibrium quantity.

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Most popular questions from this chapter

What is the formula for the income elasticity of demand?

Why is the supply curve with constant unitary elasticity a straight line?

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

A city has built a bridge over a river and it decides

to charge a toll to everyone who crosses. For one year,

the city charges a variety of different tolls and records

information on how many drivers cross the bridge. The

city thus gathers information about elasticity of demand.

If the city wishes to raise as much revenue as possible

from the tolls, where will the city decide to charge a toll:

in the inelastic portion of the demand curve, the elastic

portion of the demand curve, or the unit elastic portion?

Explain.

The equation for a demand curve is P = 2/Q. What

is the elasticity of demand as price falls from 5 to 4?

What is the elasticity of demand as the price falls from 9

to 8? Would you expect these answers to be the same?
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