[NinaSun]

If the demand for a normal good is inelastic, then the sales price of the product would increase following a(n):

a. Increase in the supply of the product

b. Decrease in the supply of the product

c. Decrease in the price of a substitute good

d. Increase in the number of suppliers of the product

The answer is b. I cant find any clue for this question. Don understand Becker’s explanation. Can any one help?

Thanks

AUD-74,75 11/2014
REG-80 04/2015
FAR-74, 91 11/2015
BEC-79 08/2015

[cpagal]

I don't know the “correct” answer, cause I am not on that section, but here is how I would think about it.

Pretend you are a gas station:

Demand is inelastic, meaning it doesn't change. No matter what, 100 people per day will want to fill up their car with gas in your neighborhood.

a. Increase in the supply of the product – having more gas doesn't make your gas more valuable, so this is wrong

b. Decrease in the supply of the product 100 people want gas, but there is only enough gas for 50 people, so people are willing to pay more for gas and the price will go up. It usually happens for every major hurricane until the government freezes gas prices. During Katrina evacuation, it was $20 a gallon in some places. If people want it or NEED it, having less will make the price skyrocket.

c. Decrease in the price of a substitute good – the gas station across the street lowers their price, it doesn't make your gas more valuable, so this is wrong

d. Increase in the number of suppliers of the product – two new gas stations opened up. You better not raise your prices or you will lose your customers.

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[tailz2016]

When a product is inelastic it means that overall revenue will still increase even when price increases. Example, an inelastic product may be gasoline. It's inelastic because everyone needs gas and if it goes up quantity demanded may decrease but overall revenue will increase . In your situation if gas supply decreases (limited quantity) then price will increase because it's inelastic. If it were elastic then if gas prices increased then quantity demanded will also decrease. It's easier if you know how to draw this on the supply demand graph. If you draw if you can see that when supply decreases there is a new equilibrium at a higher price.

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[JohnWayneIsGod]

B!

Like cpagal, I'm not on this section, but I enjoyed economics. Inelastic demand is when demand does not decrease with an increase in prices. Like the gas example above.

Now the question above is really about the Supply and Demand curve. The real question is ‘Of all of the events listed below, which will make prices go up?' A: Would decrease prices; C: Would decrease prices but is only applicable IF there was elastic demand; D: Decrease prices. We're left with B. Also if you took a look at the Supply and Demand Curve, the supply curve moves to the left with a decrease in supply thus resulting in an increase in prices. The enlastic demand is just another way of saying that the demand curve will be unaffected while the supply curve moves to the left.

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[Mustang13]

The way I see this is that the demand for a product will not change based on the price. However, what will make the price of the good go up? Supply goes down, and makes the price go up. Product is still inelastic. Sale price goes up.

Economics is tricky sometimes, I feel like I have a pretty good grasp at times and then I get that one question that make me feel like I have no idea.

Whether you are the lion or the gazelle, when the sun comes up, you'd better be running.

AUD 73,77
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REG 74, 81

[NinaSun]

Thank you @cpagal. Great explanation

AUD-74,75 11/2014
REG-80 04/2015
FAR-74, 91 11/2015
BEC-79 08/2015

[Anonymous]

so is the question asking what the sales price of the product would increased by? It kind of sounds to me if they were asking which of the following would be caused by the product sales price increase

[NinaSun]

@anianja. As the question saying “following an”, I think it ask the cause of rising price. If the question ask “followed by”, it would ask the consequent of rising price. My idea, welcome to correct.

AUD-74,75 11/2014
REG-80 04/2015
FAR-74, 91 11/2015
BEC-79 08/2015

[Author]

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