Question

suppose that the demand for shoes is elastic, but the supply is inelastic. in the market for belts, the demand and the supply of belts are elastic. assume that everything else is the same and that the increase in costs reduces quantities supplied in each case by the same amount at each price. in which market will a change in the costs of inputs have the greatest effect on the price?

Answer 1

A change in the cost of inputs would have the greatest impact on the price in the market for belts

Demand is elastic if a small percentage change in price leads to greater percentage change in quantity demanded. For example, a 10% change in price leads to a 50% change in the quantity demanded.

Demand is inelastic if a small percentage change in price leads to little or no change in the percentage change in quantity demanded. For example, a 10% change in price leads to a 5% change in the quantity demanded.

Supply is elastic if a small percentage change in price leads to greater percentage change in quantity supplied. For example, a 10% change in price leads to a 50% change in the quantity supplied.

Supply is inelastic if a small percentage change in price leads to little or no change in the percentage change in quantity supplied. For example, a 10% change in price leads to a 5% change in the quantity supplied.

An increase in cost would lead to a fall in supply as it would be more expensive to produce. A decrease in supply would lead to an increase in price.

In markets where the demand is elastic, the change in price would lead to a greater decrease in demand when compared with a market where demand is inelastic.

In markets where supply is inelastic, when price increases, suppliers would not be able to reduce supply as much as the market where supply is inelastic

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