Beachfront resorts have inelastic supply, and automobiles have an elastic supply. Suppose that a rise in population doubles the demand for both products (that is, the quantity demanded at each price is twice what it was).
a. What happens to the equilibrium price and quantity in each market?
b. Which product experiences a larger change in price?
c. Which product experiences a larger change in quantity?
d. What happens to total consumer spending on each product?
Draw standard supply and demand graphs for both markets. In the beachfront market, supply is inelastic; so make the supply curve nearly vertical. In the auto market, supply is elastic, so make the supply curve nearly horizontal. Now shift the demand curves in each market. You should have your answers.
which good is an inferior and which is a normal good
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Draw standard supply and demand graphs for both markets. In the beachfront market, supply is inelastic; so make the supply curve nearly vertical. In the auto market, supply is elastic, so make the supply curve nearly horizontal. Now shift the demand curves in each market.
a.The demand curves will shift to the right for both the market as shown. Both equilibrium price and quantity will increase. B. The more elastic the supply curve , the less will be the change in price due to a demand shock . Therefore ,The price of resorts will increase more. C.The more elastic the supply curve , the higher will be the change in...
To answer these questions, we need to understand the concepts of elastic and inelastic supply, as well as the impact of changes in demand on equilibrium price and quantity.
Elastic supply refers to a situation where the quantity supplied is highly responsive to changes in price, resulting in a relatively larger change in quantity supplied. Inelastic supply, on the other hand, occurs when the quantity supplied is not very responsive to changes in price, leading to a relatively smaller change in quantity supplied.
a. In the case of a rise in population that doubles the demand for both beachfront resorts and automobiles, here is what happens to the equilibrium price and quantity in each market:
1. Beachfront resorts (inelastic supply): Since beachfront resorts have inelastic supply, the quantity supplied does not increase substantially in response to the doubled demand. As a result, the equilibrium price of beachfront resorts will rise significantly, while the equilibrium quantity will only increase moderately.
2. Automobiles (elastic supply): Due to the elastic supply of automobiles, the quantity supplied can be increased more easily in response to the doubled demand. Therefore, the equilibrium price of automobiles will experience a smaller increase compared to beachfront resorts, while the equilibrium quantity will increase more significantly.
b. The product that experiences a larger change in price is beachfront resorts. This is because beachfront resorts have an inelastic supply, meaning that when the demand doubles, the quantity supplied doesn't increase proportionally. As a result, the price of beachfront resorts needs to rise significantly to reach a new equilibrium.
c. The product that experiences a larger change in quantity is automobiles. Since automobiles have an elastic supply, the quantity supplied can be easily increased in response to the doubled demand. Therefore, the equilibrium quantity of automobiles will increase more significantly compared to beachfront resorts.
d. Total consumer spending on each product depends on both the change in price and the change in quantity. However, since the price of beachfront resorts increases significantly while the quantity only increases moderately, the total consumer spending on beachfront resorts will rise but at a lesser rate compared to the rise in demand. For automobiles, although the price increase is smaller, the significant increase in quantity supplied will result in a larger increase in total consumer spending on automobiles.
In summary:
a. Equilibrium price: Beachfront resorts increase significantly, automobiles increase moderately.
Equilibrium quantity: Beachfront resorts increase moderately, automobiles increase significantly.
b. Beachfront resorts experience a larger change in price.
c. Automobiles experience a larger change in quantity.
d. Total consumer spending on beachfront resorts increases, but at a lesser rate compared to the rise in demand. Total consumer spending on automobiles increases at a higher rate due to the significant increase in quantity supplied.