Beachfront resorts have an inelastic supply, and automobiles have an elastic supply. Suppose that a rise in population doubles the demand for both products (that is, the quantity demanded, at each price, is twice what it was)a. What happens to the equilibrium price and quantity, in each market?b. Which product experiences a larger change in price?c. Which product experiences a larger change in quantity?d. What happens to total consumer spending, on each product?

What happens to the equilibrium price and quantity, in each market?

Beachfronts have inelastic supply, which means that their supply is fixed no matter how large the demand. The population increase would simply increase the price of renting a beachfront.

Automobiles have elastic supply, their supply responds to demand. At fist, the population increase would cause a price hike, but in the long-run, supply would meet demand and reach a new equilibrium.

b. Which product experiences a larger change in price?

Beachfronts experience a larger change because their price goes up, and stays above the previous equilibrium price.

c. Which product experiences a larger change in quantity?

Automobiles, simply because they do have a elastic supply that can increase to meet the new larger demand. Beachfront supply is inelastic and will stay the same no matter how much the population and demand grows.

d. What happens to total consumer spending, on each product?

Total consumer spending on beachfronts will be very high because of the very high prices.

Consumer spending in automobiles will be higher than before because of the higher demand, but not as high as consumer spending on beachfront, because automobile supply will also grow, bringing down prices to a similar point to the previous equilibrium price.

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