The more responsive quantity demanded is to changes in price, the less
the change in equilibrium price and the greater the change in
equilibrium quantity resulting from any given shift in the supply curve.
Both parts of the figure are drawn to the same scale. They show the same
initial equilibrium, and the same shift in the supply curve, from
In each part, initial equilibrium is at price and output and the
new equilibrium, is at and In part (i), the effect of the reduction
in supply is a slight rise in the price and a large decrease in quantity. In
part (ii), the effect of the identical reduction in supply is a large increase
in the price and a relatively small decrease in quantity.
Part (i) of Figure 4-1 illustrates a case in which the quantity that
consumers demand is quite responsive to price changes—that is, demand
is relatively elastic. The reduction in supply pushes up the price, but
because the quantity demanded is quite responsive to changes in price
(demand is elastic), only a small change in price is necessary to restore
equilibrium.
E 0 , S
S 1. p 0 Q 0
E 1 , p 1 Q 1.