Hold the shift fixed when comparing responsiveness.
Elasticity helps explain how a specified curve shift is divided between price and quantity adjustment. For a given supply decrease, less price-responsive demand generally produces a larger price rise and smaller quantity fall around a common starting equilibrium. For a given demand increase, less responsive supply generally produces a larger price rise and smaller quantity increase. Make the comparison controlled: use common axes and starting conditions, the same shift, and otherwise unchanged relationships. Responsiveness affects the size of outcomes; it is not the cause of the original shift.
- Supply shift
- After the same supply decrease, less responsive buyers cut purchases less as price rises. A larger price rise is then needed to remove the shortage, with a smaller fall in quantity traded.
- Demand shift
- After the same demand increase, less responsive sellers add less output as price rises. More of the adjustment occurs through a higher price and less through extra quantity.
- Comparison
- Use a common starting equilibrium, common axes and the same specified shift.
Build a causal explanation
Cause
Name the event shifting demand or supply. Elasticity itself is not the event.
Adjustment
Explain the shortage or surplus at the old price, then the movements along the relevant curves.
Relative size
Explain why the responding side changes quantity more or less for a price change; connect this to the new equilibrium.
Controlled comparison
Different shifts, starting points or market definitions can also change outcomes. Do not attribute every observed difference to elasticity alone.
| Demand relationship | New price | New quantity | Change |
|---|---|---|---|
| A: Qd=200-10P | $11 | 90 | Price +$1; quantity -10 |
| B: Qd=120-2P | About $11.67 | About 96.67 | Price +$1.67; quantity -3.33 |
Worked example: The same supply disruption in two markets
Linear markets both start at P = $10 and Q = 100 units per week. Both have supply Qs = 10P. A has demand Qd = 200 - 10P; B has Qd = 120 - 2P. A disruption reduces quantity offered at each price by 20 in both, giving Qs = 10P - 20.
- At the old $10 price, the disruption leaves supply of 80 against demand of 100 in both markets: a shortage of 20. B's buyers cut purchases less for each dollar price rise, so its price must rise further before demand and supply match.
- In A, equating 200 - 10P with 10P - 20 gives P = 11 and Q = 90: price rises by $1 and quantity falls by 10.
- In B, equating 120 - 2P with 10P - 20 gives P about 11.67 and Q about 96.67: a larger price rise and smaller quantity fall.
- Both have the same direction of change. The different sizes reflect the different demand relationships in this controlled example; the disruption shifts supply, not demand.
Watch out for this
Inelastic demand causes the supply curve to shift left.
The stated supply event causes the shift. Demand responsiveness helps determine the resulting price and quantity adjustment.
Check your understanding
Two markets start at the same price and quantity and experience the same demand increase. Which tends to have the larger price rise and smaller quantity increase, other things equal?
- The market with more elastic supply.
- The market with less elastic supply.
- There must be no price change in either market.