Question

Inelastic demand creates an incentive for suppliers to: A) compete with each other and increase the quantity supplied. B) stop producing altogether. C) try to get together and increase the quantity supplied. D) try to get together and limit the quantity supplied.

Answer 1

Answer:

D) try to get together and limit the quantity supplied.

Explanation:

Elasticity of demand is defined as a measure of the responsiveness of changes in quantity demanded with change in price.

When price increases the quantity demanded falls.

If a good is inelastic it means that the price increase will not result in a big drop in quantity demanded.

So if suppliers notice a good is inelastic they will most likely come together to reduce supply while increasing prices. This will result in higher revenues for them as quantity demanded does not fall with increase in price.