Micro Foundations · intermediate
What moves on the Price Elasticity of Demand & Supply diagram
The split of a demand shock between price and quantity is decided by the elasticityelasticityHow strongly one variable responds to another, usually quantity's percentage response to a price change. of the OTHER curve.
Start at equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change..
Demand shifts right, but how the market responds depends entirely on the slopes.
Steep supply → price spikes. Flat supply → quantity expands. Same shift, different outcomes.
Examiners ask this as: demand increase elasticity, who bears, price versus quantity response.
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