Shifting Supply or Demand Curves

Shifting Supply or Demand Curves - gleaned from this...

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Shifting Supply or Demand Curves Another way in which elasticity takes on practical meaning is through the impact of shifting supply or demand curves. Shifts in one curve can have drastically different effects, depending on how elastic or inelastic the other curve is. For instance, let's take another look at the market for gasoline. Because demand is relatively inelastic, at least in the short run, when OPEC decides to tighten up supply and send less oil to the U.S., the inward shift in the supply curve causes much higher prices, with a slight drop in quantity consumed. Figure %: The Effects of Tightened Oil Supply on the Market for Gasoline Why is this? Because American consumers are not willing to significantly cut their gasoline consumption in the short run (meaning they are very inelastic in the short run) a shift in the supply curve affects the price much more than the quantity. A powerful general rule can be
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Unformatted text preview: gleaned from this example: if one curve (whether supply or demand) is inelastic, shifts in the complementary curve (whether demand or supply) affect price more than quantity; on the flip side, if one curve is elastic, shifts in the other curve affect quantity more than price. Practically speaking, the government often has to take such effects into consideration before making policy changes. For example, if the government's goal is to limit imports in order to promote domestic industry, it must first consider whether its policy will have the desired effect. If demand for imports is inelastic, an increased tariff on imports will only result in increased prices without a significant drop in quantity of imports consumed, which does not benefit domestic producers and only results in angry domestic consumers....
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This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.

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