Question

In: Economics

An inelastic supply increases. Compare the size of the changes in prices and quantities with the...

An inelastic supply increases. Compare the size of the changes in prices and quantities with the size of those changes that would occur the same increase in an elastic supply. The effects of an increase in an inelastic supply will be:

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a

a larger change in equilibrium quantity and a larger change in equilibrium price.

b

a larger change in equilibrium quantity and a smaller change in equilibrium price.

c

a smaller change in equilibrium quantity and a larger change in equilibrium price.

d

a smaller change in equilibrium quantity and a smaller change in equilibrium price.

e

The changes in equilibrium quantity and price will be the same in both cases.

Solutions

Expert Solution

Ans: c) a smaller change in equilibrium quantity and a larger change in equilibrium price.

Explanation:

When supply is inelastic , then a larger change in price will lead a smaller change in quantity. An inelastic supply curve is steeper in shape.

So , the effects of an increase in an inelastic supply will be a smaller change in equilibrium quantity and a larger change in equilibrium price.

Rahul Sunny answered 2 years ago
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