Suppose that a market with an inelastic supply curve experiences a shift to the
ID: 1173303 • Letter: S
Question
Suppose that a market with an inelastic supply curve experiences a shift to the right in the demand curve. Using comparative statics, analyze how the equilibrium price and equilibrium quantity in this market will change as a result of the shift to the right in the demand curve. What is the magnitude of the change in the equilibrium price and equilibrium quantity? Be sure to illustrate your answer with graph
Suppose that a market with an inelastic supply curve experiences a shift to the right in the demand curve. Using comparative statics, analyze how the equilibrium price and equilibrium quantity in this market will change as a result of the shift to the right in the demand curve. What is the magnitude of the change in the equilibrium price and equilibrium quantity? Be sure to illustrate your answer with graphExplanation / Answer
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An inelastic supply curve is a horrizontal flat line. This suggests an increase in demand will keep the price exactly the same.
Comparative statics anaylses the movement between two points after a chnage has occured. A change exogenous in nature.
Evidently here the price will stay the same as the gradient of the horrizontal supply line is vertical. This can be shown by differntiating the equation of the supply line. This will equal 0. Thus when any movement caused by the shift in the demand curve is multiplied by 0 the change in price will always be zero.
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