Many new restaurants have opened in Collegetown in recent years

Economics Dec 17, 2020

Many new restaurants have opened in Collegetown in recent years. Given this change in supply, what type of demand would result in a larger drop in prices for restaurant meals?

a. elastic demand

b. inelastic demand

c. it does not matter

Expert Solution

The answer is A, elastic demand. As many new restaurants come to town the restaurant market is becoming perfectly competitive. In a competitive market the demand curve for any firm is perfectly elastic. This is because the products are identical and the firms are price takers.

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