Suppose the demand curve for a product is represented by a typical downward-sloping curve.Now suppose the demand for this product decreases.Which of the following statements accurately predicts the resulting decrease in price?
A)The more elastic the supply curve, the greater the price increase.
B)The more elastic the supply curve, the smaller the price decrease.
C)The increase in price is not affected by the elasticity of the supply curve.
D)The decrease in price will always be proportional to the magnitude of the demand shift.

Question

Quizplus · Accepted Answer

The more elastic the supply curve, the smaller the price decrease. When the demand for a product decreases, the market will experience a surplus of the product, meaning that the quantity supplied exceeds the quantity demanded. This puts pressure on sellers to lower their prices to clear their inventory. However, the extent to which sellers can lower their prices is limited by the elasticity of their supply. If the supply is highly elastic, then sellers can easily and quickly adjust their production in response to changes in demand, which allows them to lower their prices only by a small amount. On the other hand, if the supply is inelastic, then sellers cannot adjust their production as easily, which means that they will have to lower their prices by a larger amount to clear their inventory.

Suppose the Demand Curve for a Product Is Represented by a Typical