Question

A decrease in supply will cause the largest increase in price when a. both supply and demand are inelastic. b. both supply and demand are elastic. c. demand is elastic and supply is inelastic. d. demand is inelastic and supply is elastic.

Answer 1

Answer:

c. demand is elastic and supply is inelastic.

Explanation:

Elasticity is a measure of how buyers and sellers react to a change in prices, and allow us to analyze supply and demand more accurately.

The price elasticity of demand measures how much the quantity demanded changes due to a change in prices. If the demand curve is elastic, total revenue falls as the price increases. If the demand curve is inelastic, total revenue increases as the price increases.

With an elastic demand curve, an increase in prices leads to a decrease in the quantity demanded, in a greater proportion than the increase in prices, in this way total revenue decreases. and the supply decreases greatly.