Question

For several years in a row, the east coast cities of the nation suffered extremely cold winters. Demand for home heating oil was very inelastic. How did the elasticity of supply impact the changes in price that resulted from the increased demand? a) Supply is elastic, therefore, the price increased more than it otherwise would have. b) Supply is inelastic, therefore, the price increased more than it otherwise would have. c) The elasticity of supply would have no impact on the price changes. d) Supply is inelastic, therefore, the price increased less than it otherwise would have. e) Other factors impacted price of heating oil more than elasticity of supply or demand.

Answer 1

Answer:

B) Supply is inelastic, therefore, the price increased more than it otherwise would have.

Explanation:

The price elasticity of demand (PED) measures how much the quantity demanded of a product or service changes proportionally to a change in the price of the product or service.

If PED < 1, the demand is inelastic

PED > 1, the demand is elastic

PED = 1, the demand is unitary

When the PED is inelastic, if the price of a product or service changes 1%, then the quantity demanded will change less than 1%.

In this case the price increased a lot, but the quantity demanded only decreased a little bit.