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Chapter 5: Q.15 (page 130)

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

Short Answer

Expert verified

The greater impact will be on equilibrium quantity.

Step by step solution

01

Step 1. Introduction:

Elastic demand curve denotes that quantity demanded correspond to price variation in a more than proportional way.

02

Step 2. Explanation:

Suppose there is a technological upgrade which causes the supply curve to move to the right. If the demand curve is elastic, then a higher quantity will be sold in the market but the price level will increase only slightly.

03

Step 3. Conclusion:

Thus, with elastic demand curve, a shift in the supply curve will have a greater impact on the equilibrium quantity.

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Most popular questions from this chapter

What is the relationship between price elasticity and position on the demand curve? For example, as you move up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that?

The ability of firms to enter and exit a market over time means that, in the long run,

a. the demand curve is more elastic.

b. the demand curve is less elastic.

c. the supply curve is more elastic.

d. the supply curve is less elastic.

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 the income elasticity of demand?

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?
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