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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.

03

Step 3. Conclusion:

Thus, when demand is inelastic, shifts in supply will have a greater impact on equilibrium price.

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