Question

The supply of beachfront property is inelastic. The supply of new cars is elastic. Suppose population growth causes demand for both goods to double. For which product will price change the most? (HINT: which has the steeper supply curve?)

1) beachfront property
2) new cars

Answer 1

Beachfront property, with its inelastic supply, will experience a greater price change when demand doubles compared to new cars, which have a more elastic supply.

Step-by-step explanation:

When considering beachfront property with inelastic supply and new cars with elastic supply, and how their prices would change if demand for both doubles, it is important to understand the concept of supply elasticity. The supply of beachfront property is not easily increased due to the limited nature of coastal land, making its supply curve steeply inelastic.

In contrast, the supply of new cars can be increased more readily, leading to a more elastic supply curve. Therefore, when demand for both doubles, the price for beachfront property will change more significantly compared to new cars.

This is because the inelastic supply of beachfront property cannot keep up with the increased demand, thus driving prices up sharply, while the elastic supply of new cars can be adjusted more easily to accommodate the higher demand, resulting in a less dramatic price change.