Answer to Question #294344 in Microeconomics for Rakshitha

Question

During the Covid-19 pandemic, the Ayurvedic medicines have an inelastic demand and electronic devices have an elastic demand. Imagine that technological advancement doubles the supply of both products (i.e. quantity supplied at each price is twice as it was earlier) [2.5*2 = 5] i. What will be the equilibrium price and quantity in each market? ii. Which product experiences a larger change in price and which product experiences larger change in quantity.

Answer 1

i. The equilibrium price will decrease and equilibrium quantity will increase in each market.

ii. The product with more elastic demand (electronic devices) will experience a larger change in quantity, and Ayurvedic medicines will experience a larger change in price.