The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

Question

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The size of price elasticity of demand is a key factor in determining the extent to which a change in supply will affect market price. When demand is elastic (i.e. price sensitive), a small change in supply can cause a relatively large change in price. Conversely, when demand is inelastic (i.e. less price sensitive), a change in supply will have less impact on price.

The Size of the Price Elasticity of Demand Is Important