Question

For each of the following assume that the demand curve shifts while the supply curve remains constant.
What is the direction of the demand shift and relative elasticity of supply?
a. Price falls enormously. Quantity does not change. Supply is:
1) perfectly elastic
2) highly elastic
3) highly inelastic
4) perfectly inelastic
and demand shifts: out, in.
b. Prices do not change. Quantity increases significantly. Supply is:
1) perfectly elastic
2) perfectly inelastic
3) highly elastic
4) highly inelastic
and demand shifts: out, in.
c. Price rises enormously. Quantity does not change. Supply is:
1) perfectly inelastic
2) highly elastic
3) perfectly elastic
4) highly inelastic
and demand shifts: out in.

Answer 1

When there is a shift in demand for a good or service, the price elasticity of supply, or the change in quantity provided owing to a change in price, defines how much the equilibrium price and quantity in the market for that good or service will be impacted.

a. Supply is vertical and perfectly inelastic (the demand curve moves in (or to the left). There will be a surplus at the current price when demand shifts, but since suppliers are unable to reduce their supply, they must drop their prices in order to get rid of their surplus. As a result, while the quantity given remains constant, the equilibrium price drastically decreases.

b. Demand shifts out and supply is perfectly elastic (the supply curve is horizontal) (or to the right). There will be a shortage at the current pricing when demand shifts out. The quantity supplied rises to match the quantity demanded at the current price since supply is completely elastic. As a result, the quantity supplied dramatically increases but the equilibrium price remains same.

c. Demand shifts out while supply is perfectly inelastic (the supply curve is vertical) (or to the right). At the current price, there will be a scarcity when demand declines, but providers are unable to increase their output. Price increases due to the scarcity until the amount desired and quantity provided are equal. As a result, while supply is constant, the equilibrium price dramatically rises.

The Know more about Price Elasticity, Visit:

https://brainly.com/question/13565779

#SPJ4