Assume that the Demand elasticity of a good is -1 and the Supply elasticity is +2. Assume also that (i) that the price of a complement decreases and therefore Demand shifts out by +2% and (ii) because one of the inputs in production declined in price, the Supply shifts by +2% . In partial equilibrium, the % change in the equilibrium price is?
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Similarly, the supply elasticity of +2 means that a 1% increase in price will lead to a 2% increase in quantity supplied. When the price of a complement decreases, demand increases. In this case, demand increases by 2%. This means that at the current price, Show more…
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