Exercise on Elasticity and Changes in Equilibrium: Solutions
The supply of oil is inelastic while the supply of cars is elastic.
Assume population growth provokes demand for both goods to double (at each price, Qd doubles).
Questions
- For which product will price (P)change the most?
- For which product will quantity (Q) change the most?
Solutions:
If supply is inelastic, then a raise in demand has a bigger effect on price than on quantity.
If supply is elastic, then a raise in demand has a bigger effect on quantity than on price.
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Date of last modification: 2019