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Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw
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Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand

Chapter 5, Problem 13

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QUESTION:

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied 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?

c. Which product experiences a larger change in quantity?

d. What happens to total consumer spending on each product?

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QUESTION:

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied 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?

c. Which product experiences a larger change in quantity?

d. What happens to total consumer spending on each product?

ANSWER:

Step 1 of 2

The elasticity of demand presents the actual magnitude of demand change when the law of demand applies to the product. Law of demand answers that demand falls when the price rises, but the elasticity of demand answers “by how much”.

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