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Question
Statistics
Posted 5 months ago
Under what conditions will total economic surplus change the most in a market as a result of a change in demand?
Choose 1 answer:
(A) When supply is perfectly inelastic and demand is elastic
(B) When supply is very inelastic and demand is very elastic.
(c) When supply is very elastic and demand is very elastic
D When supply is very inelastic and demand is very inelastic
(E) When supply is very elastic and demand is very inelastic.
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Answer from Sia
Posted 5 months ago
Solution by Steps
step 1
To determine under which conditions the total economic surplus changes the most as a result of a change in demand, we need to understand the concept of elasticity. Elasticity measures how much the quantity demanded or supplied responds to changes in price
step 2
Total economic surplus is the sum of consumer surplus and producer surplus. When demand changes, the impact on total economic surplus is greater when the supply is less responsive (inelastic) and the demand is more responsive (elastic)
step 3
If supply is perfectly inelastic, it means that the quantity supplied does not change at all in response to price changes. If demand is elastic, the quantity demanded changes significantly with price changes. This combination will lead to the largest change in total economic surplus
Answer
A
Key Concept
Elasticity of supply and demand
Explanation
Total economic surplus changes the most when supply is perfectly inelastic and demand is elastic because the quantity supplied remains constant while the quantity demanded changes significantly.
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