Question

For each of the following assume that the supply curve shifts while the demand curve remains constant. What is the direction of the supply shift and relative elasticity of demand?

1.) Price falls significantly. Quantity hardly changes at all.

Demand is ____

a.) perfectly elastic

b.)highly inelastic

c.)highly elastic

2.) Prices do not change. Quantity decreases significantly.

Demand is _________

a.) highly elastic

b.) perfectly elastic

c.) highly inelastic

Can anyone help?

Answer 1

1) Supply curve shifts rightward from AS to AS1 which cause price to fall significantly. If there is hardly change in quantity and supply curve shifted rightward, demand curve must be highly inelastic which means demand is near to vertical but not perfectly vertical.

Option B is correct.

2) Shift in supply curve leftward from AS to AS1 which does not change price but quantity decreased significantly. There must be perfectly elastic demand curve.

Option B is correct.