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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

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

To determine

Suppose the supply is inelastic, which has a large effect due to shift in demand curve, on quantity or on price level?

Explanation

If the supply is inelastic it means the supply curve is vertical in shape, parallel to y-axis. It means a large change in price would have no impact on quantity supplied. Consider the downward sloping demand curve which intersects the vertical supply curve at point ‘E’. We can clearly see that, whether the demand curve shifts upwards or downwards, there will be a large impact on price level and no impact on quantity because the supply curve is inelastic...

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