Reading 13: Elasticity LOS a(part2)习题精选 2010, interpret, demand, supply, price

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Session 4: Economics: Microeconomic Analysis
Reading 13: Elasticity

LOS a, (Part 2): Calculate and interpret the elasticity of supply.

Suppose that the demand curve for soybeans shifts such that the equilibrium price of soybeans decreases 58%. At the new equilibrium price, the quantity that soybean suppliers are willing to provide decreases by 3%. Which of the following most accurately describes the respective elasticity of supply and relative elasticity for soybeans?

A) +19.33; inelastic.

B) ?0.05; elastic.

C) +0.05; inelastic.

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A perfectly inelastic supply curve is vertical (elasticity = 0). In this case, the elasticity of supply is close to zero. Therefore the supply of soybeans is relatively inelastic.

[此贴子已经被作者于2010-4-16 16:12:46编辑过]

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Which of the following is least likely to affect the elasticity of supply for a good?

A) The uniqueness of production inputs.

B) The time frame for making the supply decision.

C) The relative amount of income spent on the good.

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Elasticity of supply is influenced by the time frame within which the supply decision is made and the ability to make substitutions between productive resources. Unique inputs do not have good substitutes. The relative amount of income spent on a good is a determinant of the price elasticity of demand.

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Economics commentator Gail Brythe is discussing the different factors that influence the elasticity of supply. She states the following:

Statement 1: Elasticity of supply is greater when a good or service can only be produced with unique or rare inputs.

Statement 2: Typically, a good’s momentary supply elasticity is higher than its short-run supply elasticity, which in turn is higher than its long-run supply elasticity.

With respect to Brythe’s statements:

A) both are incorrect.

B) only statement 1 is incorrect.

C) only statement 2 is incorrect.

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Both statements are incorrect. Elasticity of supply (i.e., the responsiveness of the supply of a good to changes in its price) is low when a good can only be produced with rare or unique inputs, because the potential output of the good is constrained by the availability of those inputs. Supply elasticity is lowest in the momentary time frame because producers typically cannot change the output of a good immediately. Supply becomes more elastic as the time frame increases because long-run adjustments in capital investment and technology lead to greater changes in profit maximizing output levels.

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Suppose that the demand curve for honey shifts such that the equilibrium price for a pound of honey increases from $7 to $9 per pound. At the new equilibrium, the quantity supplied increases from 500 pounds per month to 600 pounds per month, although the supply curve has not shifted. The elasticity of supply for honey is closest to:

A) +0.91.

B) +1.12.

C) +0.73.

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The average quantity of honey supplied is (500 + 600) / 2 = 550 pounds, and the average price of honey ($7 + $9) / 2 = $8 per pound. So, the percentage change in quantity is (600 – 500) / 550 = 18.18% and the percentage change in price is (9 - 7) / 8 = 25.00%. Thus, the elasticity of supply is 18.18 / 25.00 = +0.73.

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Gene Bawerk, an economics professor, is lecturing on the factors that influence the price elasticity of demand. He makes the following assertions:

Statement 1: For most goods, demand is more elastic in the long run than the short run.

Statement 2: Demand for a good becomes more elastic when a close substitute for it becomes available on the market.

With respect to Bawerk’s statements:

A) only statement 1 is correct.

B) only statement 2 is correct.

C) both are correct.

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Both of these statements are accurate. Price elasticity for most goods is greater in the long run because individuals can make long-term decisions that require different quantities of the good, such as buying more fuel efficient vehicles to use less gasoline. Price elasticity is greater the better the available substitutes because an increase in price will lead more buyers to switch to the substitute products.

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The demand for a product tends to be price inelastic if:

A) few good complements for the product are available.

B) people spend a large share of their income on the product.

C) few good substitutes for the product are available.

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If a large price change results in a small change in quantity demanded, demand is inelastic. Cigarettes are an example of a good with inelastic demand.

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Which of the following most accurately describes elasticity of supply? Elasticity of supply is the percentage change in the quantity supplied divided by the percentage change in:

A) price and it equals zero when supply is perfectly elastic.

B) price and it equals zero when supply is perfectly inelastic.

C) quantity demanded and it equals infinity when supply is perfectly inelastic.

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Elasticity of supply equals zero when the supply curve is vertical, indicating perfectly inelastic supply.