If a given reduction in market demand causes the market equilibrium price to decrease by a very large percentage while equilibrium quantity purchased decreases by a very small percentage,
A)market supply is inelastic (but not perfectly inelastic.)
B)market supply is elastic (but not perfectly elastic.)
C)market supply is perfectly inelastic.
D)market supply is perfectly elastic.

Question

Quizplus · Accepted Answer

If a reduction in market demand causes the market equilibrium price to decrease by a very large percentage while equilibrium quantity purchased decreases by a very small percentage, then it indicates that the market supply is relatively inelastic. Inelastic supply means that the quantity supplied is not very responsive to changes in the market price. Therefore, even if the demand decreases significantly, the price would have to fall by a large amount to reduce the quantity supplied by a small percentage. Thus, the correct choice is A - market supply is inelastic but not perfectly inelastic.

If a Given Reduction in Market Demand Causes the Market