Question

A decrease in supply will cause the smallest increase in price when

Answer 1

Answer:

Both supply and demand are elastic.

Explanation:

Demand or supply elasticity is defined as elasticity or responsiveness with more than one numerical value, which indicates their high response to the change in price.  

Elastic demand: It is the percentage change in quantity demanded due to the change in price in absolute value of the product.

The elasticity of supply: It is defined as the response of the quantity of a good supplied to a change in the price of the good. Likely to be positive in output.

FORMULA; Elasticity of supply= $(\%\ change\ in\ quantity\ supplied) / (\%\ change\ in\ price)$

Due to the decrease in the supply of goods in the market, it leads to the scarcity of goods, therefore there is an increase in the price of goods.