For a given, permanent reduction in demand for a product:
A)the decrease in price will be greater the more elastic is supply.
B)the decrease in price will be greater in the long run than in the short run.
C)the decrease in price will be greater the more inelastic is supply.
D)none of the above

Question

For a given, permanent reduction in demand for a product:
A)​the decrease in price will be greater the more elastic is supply.
B)​the decrease in price will be greater in the long run than in the short run.
C)​the decrease in price will be greater the more inelastic is supply.
D)​none of the above

Quizplus · Accepted Answer

When the supply of a product is inelastic, it means that the quantity supplied is not very responsive to changes in price. Therefore, if there is a permanent reduction in demand for the product, the decrease in price that sellers are willing to accept in order to sell the same quantity will be smaller. On the other hand, if supply is elastic, sellers are more responsive to changes in price, and the decrease in price required to sell the same quantity will be greater. Overall, the decrease in price will be greater the more inelastic is supply. Option A is incorrect because it suggests that the decrease in price will be greater with a more elastic supply, which is the opposite of what is expected. Option B is incorrect because it incorrectly suggests that the decrease in price will be smaller in the short run, but price decreases should occur in both the short and long run.

For a Given, Permanent Reduction in Demand for a Product