Suppose that the price elasticity of demand for milk is 0.9 and the price elasticity of supply for milk is 1.1,then a 6% increase in the demand for the product can be expected to increase the price by 2.5%.

Question

Quizplus · Accepted Answer

The price increase depends on the relative elasticities of demand and supply. With demand elasticity of 0.9 and supply elasticity of 1.1, the price increase would be less than the demand increase, but not necessarily 2.5%. The exact price change requires further calculation.

Suppose That the Price Elasticity of Demand for Milk Is