Question 1

Refer to the accompanying figure. What is the price elasticity of supply at point A?

Accepted Answer

The price elasticity of supply is (P/Q)× (1/slope). Here, (2/4)× (1/0.5)= 1.

Question 2

Suppose that each serving of Mac & Cheese costs $0.50 to make no matter how many servings are produced. This means that the price elasticity of supply for Mac & Cheese is ________ and the supply curve is ________.

Accepted Answer

In this case, the supply curve is horizontal at P = $0.50, so supply is perfectly elastic with respect to price and the elasticity of supply is infinite.

Question 3

You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2050 population of earth, but that after 2050 there will be massive starvation. This prediction appears to assume that:

Accepted Answer

This prediction appears to assume that the long-run supply of food is perfectly inelastic. Otherwise, as increases in the earth's population increase the demand for food, this should increase the price of food, leading to an increase in the quantity supplied (unless the supply of food is perfectly inelastic).

Question 4

Refer to the accompanying figure. If P = $6, then the price elasticity of supply is:

Accepted Answer

The price elasticity of supply computed as (P/Q)× (1/slope). The slope of this supply curve is 1/50, so the reciprocal of the slope is 50. Thus, if P = 6, the price elasticity of supply equals (6/100)× (50)= 3, which is clearly greater than 1.

Question 5

Oil and oil products remain the main fuel for cars, planes, ships, and power plants. The amount of oil still in the earth is finite. Given this information, the supply of gasoline is:

Accepted Answer

Supply is relatively inelastic because supply is finite.

Question 6

Refer to the accompanying figure. What is the price elasticity of supply at point B and point C?

Accepted Answer

The price elasticity of supply is (P/Q)× (1/slope). For a linear supply curve, (1/slope)is the same at every point, and the ratio P/Q remains the same as Q increases (2/4 = 4/8 = 6/12). Thus, the elasticity of supply is the same at every point along this supply curve.

Question 7

Refer to the accompanying figure. If the price rises from $10 to $14, what will happen to the price elasticity of supply?

Accepted Answer

The price elasticity of supply computed as (P/Q)× (1/slope). Note that as price rises from $10 to $14, P/Q falls, and since slope is constant along a linear supply curve, this implies that the price elasticity of supply falls as price rises from $10 to $14.

Question 8

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is

Accepted Answer

If the price elasticity of supply is zero, supply is perfectly inelastic.

Question 9

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ________ compared to the supply at a pizza restaurant that does not serve calzones.

Accepted Answer

Supply is more elastic for Antony than at a restaurant that does not serve calzones because Antony can more easily respond to an increase in the price of pizza by shifting away from producing calzones to producing pizza.

Question 10

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

Accepted Answer

The supply of tickets is perfectly price inelastic because the supply curve is vertical at the 40,000 seat capacity. That is, a change in price cannot change quantity supplied, at least in the short run.

Question 11

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will:

Accepted Answer

Given that it takes many years to train to become an orthopedic surgeon, the supply of orthopedic surgeons will be relatively inelastic in the short run. Thus, in the short run, an increase in the demand for orthopedic surgeons will have only a small impact on the number of trained orthopedic surgeons.

Question 12

For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ________ in the short run than in the long run.

Accepted Answer

The price elasticity of supply is lower in the short run because the quantity supplied cannot be quickly changed in response to a price change.

Question 13

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

Accepted Answer

A deeper well is more costly to dig and utilize. Thus, in 1985, the benefit of additional lower-priced water was not worth the added cost of a deeper well, but at the higher 2005, price apparently the benefit of the additional now higher-price water was greater than the additional cost of a deeper well.

Question 14

The inputs used to produce cupcakes (e.g., flour, sugar, butter, and labor)are also used to produce cookies, cakes, muffins, pies and many other goods. This suggests that:

Accepted Answer

If the production of a good requires inputs that are also useful in the production of other goods, then the elasticity of supply for that good will be relatively high.

Quiz 4: Elasticity