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Chapter 5: Q. 17 (page 130)

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

Short Answer

Expert verified

The larger effect will be on equilibrium quantity.

Step by step solution

01

Step 1. Introduction

Elastic supply curves show that the quantity supplied varies more than proportionally in response to price variations.

02

Step 2. Explanation

The form of the supply curve determines if a movement in the demand curve leads to a higher corresponding difference in the equilibrium price or the equilibrium quantity. The shift will be predominantly in the equilibrium quantity if the supply curve is relatively flat or elastic. A supply curve that is elastic implies that a minor adjustment in price usually leads to a larger reaction in the quantity given.

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Most popular questions from this chapter

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?

What is the formula for the income elasticity of demand?

Would you usually expect elasticity of demand or supply to be higher in the short run or in the long run? Why?

Economists define normal goods as having a

positive income elasticity. We can divide normal goods

into two types: Those whose income elasticity is less

than one and those whose income elasticity is greater

than one. Think about products that would fall into each

category. Can you come up with a name for each

category?

Would you expect supply to play a more significant

role in determining the price of a basic necessity like

food or a luxury like perfume? Explain. Hint: Think

about how the price elasticity of demand will differ

between necessities and luxuries.
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