A Decrease in Supply Will Cause the Largest Increase in Price

question 134

Multiple Choice

A decrease in supply will cause the largest increase in price when

• A)both supply and demand are inelastic.
• B)both supply and demand are elastic.
• C)demand is elastic and supply is inelastic.
• D)demand is inelastic and supply is elastic.

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Definitions:

Lagrange Multiplier

A method used in mathematical optimization to find the maxima or minima of a function subject to constraints.

Price/Demand Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, calculated as the percentage change in quantity demanded divided by the percentage change in price.

Standard Suite

A set of benchmark software or tests designed to evaluate the performance of a system or component.

Nonlinear Optimization Model

A type of optimization model where the objective function or any of the constraints are nonlinear functions.