Question

Suppose that supply increases in the market for minor oral surgeries, where the surgery can be done in the dentist's office and price elasticity of demand is 4.5. Then suppose that supply increases in the market for major reconstructive oral surgeries that have to be performed by the dentist in a hospital or surgicenter with emergency life-saving equipment on hand, and the price elasticity of demand is 0.60.
In which of these markets will the quantity demanded change the fastest toward a new equilibrium?

Answer 1

Answer:

Quantity demanded would change the fastest in the market for minor surgeries

Explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price  

If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.

The demand for minor surgeries is elastic while the demand for major surgeries is inelastic.

If supply increases in each of these market, it means that there are more doctors available to perform surgeries. This would lead to a rightward shift of the supply curve. As a result, price would reduce.

Because demand is elastic in the market for minor surgeries, the reduction in price would lead to a greater increase in demand for surgeries

While, in the market for major surgeries, there would be little or no change in the demand  

Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one

Quantity demanded would change the fastest in the market for minor surgeries