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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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