Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was). What happens to the equilibrium price and quantity in each market?

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand.  Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was).

  1. What happens to the equilibrium price and quantity in each market?     (2 marks)
  2. Which product experiences a larger change in price? Which product experiences a larger change in quantity?   (2 marks)
  3. What happens to total consumer spending on each product?      (2 marks)

 

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