Respuesta :
Answer:
In a market with relatively inelastic demand, if the supply curve shifts due to a fall in production costs, the equilibrium price will change by a higher proportion than equilibrium quantity.
Explanation:
Productions costs affect the cost it takes a for a firm to produce a good that it will sell. If these costs go down, the companies will be able to produce a larger quantity of goods which would, therefore, increase the overall supply. Hence, the supply curve would shift to the right. This shift would cause the equilibrium price to decrease.
However, since the demand is relatively inelastic, the equilibrium quantity would not change by the same percentage.
Take the example of companies that make insulin. The demand for insulin can be considered relatively inelastic. If the price of insulin decreases, the consumers would not really need to increase their monthly purchases since their individual requirements for the medicine would not be affect. However since the supply has increased, the consumers have greater access to the product which will therefore push down the price. So the net effect would be price going down by, lets say 10%, but equilibrium quantity increasing by less than 10%
