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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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Most popular questions from this chapter

What is the formula for calculating elasticity?

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 to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

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

Why is the demand curve with constant unitary elasticity concave?

Describe the general appearance of a demand or a supply curve with infinite elasticity.
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