Question

When the demand curve shifts, the change in equilibrium price will be smaller the closer the price elasticity of supply is to 0.
T/F and why?

Answer 1

false

reason: When the elasticity of supply is closer to 0, it is inelasitc supply. A change in demand will not affect the quantity supplied because supply will not change much. But a change in demand will cause a greater change on price than a more elastic supply curve would. The following graph illustrates this difference:

In the graph, the shift in demand is proportionately the same. But it has resulted in a greater change in price in the case of an inelastic supply than in the case of an elastic supply.