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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

The greater impact will be on equilibrium price.

Step by step solution

01

Step 1. Introduction

A supply curve that is inelastic is one in which a considerable percentage variation in price results in a lower percentage variation in quantity provided.

02

Step 2. Explanation

Suppose the supply curve is inelastic. The demand for the commodity has increased in the market which causes the demand curve to shift to the right. This will lead to higher prices for the commodity but the equilbrium quantity would change will less intensity as supply is inelastic. Thus, the equilbrium price would be more affected.

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Most popular questions from this chapter

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?

What is the price elasticity of demand? Can you explain it in your own words?

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

What is the formula for elasticity of savings with respect to interest rates?

From the data in Table 5.5 about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

PointsPQ
A603,000
B702,800
C802,600
D902,400
E1002,200
F1102,000
G1201,800
H1301,600

Table 5.5
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