Question

Suppose that the demand for shoes is elastic, but the supply is inelastic. In the market for belts, the demand and the supply of belts are elastic. Assume that everything else is the same and that the increase in costs reduces quantities supplied in each case by the same amount at each price. In which market will a change in the costs of inputs have the greatest effect on the price?

a.shoes
b. belts
c.The changes would be the same as the change in costs are identical.
d.It does not make a difference. It is the elasticity of demand that influences the size of the change in price.

Answer 1

A change in the costs of inputs will have the greatest effect on the price in the market for shoes where demand is elastic and supply is inelastic, while in the market for belts where both demand and supply are elastic, the effect will be greater on the quantity supplied.

Step-by-step explanation:

In the market for shoes, where the demand is elastic and the supply is inelastic, a change in the costs of inputs will have the greatest effect on the price. This is because when supply is inelastic, the quantity supplied is not very responsive to changes in costs. On the other hand, in the market for belts, where both demand and supply are elastic, a change in the costs of inputs will have a greater effect on the quantity supplied.