Question

In the Challenge​ Solution, the introduction of GM seeds shifts the market supply curve to the right and the market demand curve to the left. In​ turn, we could predict the change in the equilibrium price of crops but not the equilibrium quantity. Are there any conditions on the shapes of the supply and demand curves​ (or their​ elasticities) such that we could predict the effect on equilibrium​ quantity. Assume the introduction of GM seeds shifts market supply to the right and market demand to the left.

We could predict the effect of the introduction of GM seeds on the equilibrium quantity​ (e.g., we could predict whether the equilibrium quantity rises or​ falls) if

A. supply is more elastic than demand.

B. supply and demand are equally elastic.

C. demand is vertical.

D. demand is perfectly elastic.

E. demand is downward sloping.

Answer 1

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Ans: C, D.

Explanation:

Quantitiy change is predictable in two cases:

• When demand is vertical: Vertical demand curve solely provides information on quantity. In this case, demand has shifted to left which implies market quantity has decreased.
• When demand is perfectly elastic: When demand is perfectly elastic, supply curve solely provides information on quantity. In this case, supply curve has shifted to right which implies market quantity has increased.

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