Asked by Annette Herrera on May 02, 2024
Verified
A decrease in supply will cause the largest increase in price when
A) both supply and demand are inelastic.
B) both supply and demand are elastic.
C) demand is elastic and supply is inelastic.
D) demand is inelastic and supply is elastic.
Supply and Demand Elasticity
The measure of how much the quantity demanded or supplied responds to a change in price, indicating the sensitivity of consumers and producers to price changes.
- Comprehend the consequences of variations in supply and demand on the equilibrium of market prices and quantities.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
A
Explanation :
When both supply and demand are inelastic, a decrease in supply will not be met with a significant change in quantity demanded, leading to a larger increase in price compared to other scenarios. Elasticity measures how much the quantity demanded or supplied responds to changes in price. Inelastic demand or supply means that the quantity demanded or supplied changes very little with price changes. Therefore, if supply decreases and neither consumers nor producers are responsive to price changes (inelastic), the price has to increase significantly to reach a new equilibrium.
Learning Objectives
- Comprehend the consequences of variations in supply and demand on the equilibrium of market prices and quantities.
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