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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 demand for any 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 quantity supplied will only increase with a lesser intensity.

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Most popular questions from this chapter

30. In a market where the supply curve is perfectly inelastic, how does an excise tax affect the price paid by consumers and the quantity bought and sold?

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

A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many drivers cross the bridge. The city thus gathers information about the elasticity of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion? Explain.

Suppose that business travellers and vacationers have the following demand for airline tickets from Chicago to Miami:

Price

Quantity Demanded (business travellers)

Quantity Demanded (vacationers)

\(150

2,100 tickets

1,000 tickets

200

2,000

800

250

1,900

600

300

1,800

400

  1. As the price of tickets rises from \)200 to $250, what is the price elasticity of demand for (i) business travellers and (ii) vacationers? (Use the midpoint method in your calculations.)
  2. Why might vacationers have a different elasticity from business travellers?

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