Beach front resorts have an inelastic supply and automobiles have an elastic supply. Suppose that a rise in population doubles the demand for both products(that is the quantity demanded at each price is twice what it was)
a, what happens to the equilibrium price and quantity in each market?
b Which product experiences a larger change in price?
cWhich product experiences a larger change in quantity?
d What happens to total consumer spending on each product.
To analyze the changes in equilibrium price, quantity, and total consumer spending for beach front resorts and automobiles, we need to consider the concepts of price elasticity of supply and demand.
a) Equilibrium Price and Quantity:
In the case of beach front resorts, where supply is considered inelastic, the supply curve is relatively steep. This means that the quantity supplied does not respond much to changes in demand. As a result, the increase in demand caused by the rise in population will primarily affect the equilibrium price, leading to a significant rise, while the change in quantity will be relatively smaller.
On the other hand, automobiles have an elastic supply, meaning that the supply curve is relatively flat. In this case, the quantity supplied can significantly respond to changes in demand. As a result of the increased demand due to population growth, the equilibrium quantity of automobiles will experience a more substantial increase, while the change in price will be relatively smaller.
b) Larger Change in Price:
Since beach front resorts have an inelastic supply, the increase in demand will result in a more significant change in the equilibrium price compared to automobiles with an elastic supply. Therefore, beach front resorts will experience a larger change in price.
c) Larger Change in Quantity:
As mentioned earlier, automobiles have an elastic supply, which allows the quantity supplied to respond more significantly to changes in demand. Consequently, the increase in demand caused by population growth will lead to a larger change in the equilibrium quantity of automobiles, compared to beach front resorts with an inelastic supply. Therefore, automobiles will experience a larger change in quantity.
d) Total Consumer Spending:
Total consumer spending is determined by multiplying the equilibrium price by the equilibrium quantity.
For beach front resorts, the significant increase in the equilibrium price (due to inelastic supply) will result in a considerable rise in total consumer spending.
For automobiles, the larger increase in the equilibrium quantity (due to elastic supply) will outweigh the relatively smaller change in price, resulting in a more substantial increase in total consumer spending.
In summary:
a) Beach front resorts: significant rise in price, relatively smaller change in quantity.
Automobiles: relatively smaller change in price, significant increase in quantity.
b) Beach front resorts experience a larger change in price.
c) Automobiles experience a larger change in quantity.
d) Total consumer spending rises considerably for both beach front resorts and automobiles, but the increase is expected to be more significant for automobiles.
Always keep in mind "the l aw of supply and demand."
Sra