Question

An article in the Wall Street Journal notes that although U.S. oil production has increased rapidly in recent​ years, the increase has still amounted to only 5 percent of world production.​ Still, that increase has been​ "enough to help trigger a price​ collapse." ​Source: Georgi Kantchev and Bill​ Spindle, "Shale-Oil Producers Ready to Raise​ Output," Wall Street Journal​, May​ 13, 2015. A small increase in supply can lead to a large decline in equilibrium price when:

Answer 1

demand is relatively inelastic

Step-by-step explanation:

Relatively inelastic means that relatively large changes in price cause relatively small changes in quantity. In other words, quantity is not very responsive to price. More specifically, the percentage change in quantity is less than the percentage change in price.