What will likely happen to equilibrium price and quantity in the following cases

Question

What will likely happen to equilibrium price and quantity in the following cases? 7. a. Demand is highly inelastic. The supply curve shifts out. Supply is highly inelastic. The demand curve shifts out. h Supply is highly elastic. The demand curve shifts in. c. MULTIPLE CHOICE Circle the one best ansuwer for each of the following questions: The definition of price elasticity of demand is a the change in quantity demanded divided by 1. h the percentage change in quantity demanded e. the percentage change in price divided by the d the percentage change in the quantity the change in price. divided by the percentage change in price percentage change in quantity demanded. supplied divided by the percentage change in price 2. When the price of a good was raised from $10 to $11, the quantity demanded fell from 100 to 99. The price elasticity of demand is approximately b.1 e. 10. d 100

Explanation / Answer

7) a) Supply curve shifts out means that there is increase in supply . So the equilibrium price shoulf fall and quantity should rise . But the magnitude of this rise and fall depends on the elasticity . Here , the demand curve is highly inelastic in nature . So any change in price does not affect quantity demanded very much . It is almost vertical curve . So the change in price or fall in price will be very large and increases in quantity will be very small .

b) Demand curve shifts out refers to an increase in demand . So equilibrium price and quantity both should rise . Supply curve is highly inelastic or almost vertical . So supply is not much affected by change in price . Hence the rise in price will be greater with respect to rise in equilibrium quantity .

c) Demand curve shifts in or demand falls . Highly elastic supply refers to almost horizontal supply curve . A small change in price affects supply to a large extent . As demand falls equilibrium price falls . Since supply is highly elastic , so equilibrium quantitty will fall more then proportionately with equilibrium price .

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