Question 1

Suppose the value of the price elasticity of supply is 4.What does this mean?
A)A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent.
B)A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent.
C)A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
D)For every $1 increase in price, quantity supplied increases by 4 units.

Accepted Answer

A price elasticity of supply of 4 means that a 1 percent increase in price will lead to a 4 percent increase in quantity supplied. This indicates that the supply is relatively elastic, meaning that the producers are able to respond quickly to changes in price.

Question 2

Price elasticity of supply is used to gauge
A)how responsive suppliers are to price changes.
B)how responsive suppliers are to changes in future prices.
C)how responsive suppliers are to a change in demand.
D)how responsive sales are to a change in input prices.

Accepted Answer

Price elasticity of supply (PES) measures the responsiveness of quantity supplied to a change in price. It tells us how much the quantity supplied of a good or service will change when the price of that good or service changes. Therefore, option A is the correct answer as it states the definition of PES.

Question 3

The price elasticity of supply for umbrellas is 2.Suppose you're told that following a price increase, quantity supplied increased by 30 percent.What was the percentage change in price that brought this about?
A)60 percent
B)15 percent
C)6.7 percent
D)impossible to determine without additional information

Accepted Answer

Price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price. We have been given the elasticity of supply as 2, which means that 1% increase in price will lead to a 2% increase in quantity supplied. 
Let x be the percentage change in price that led to a 30% increase in quantity supplied. We can write the following equation based on the given information:

2 = 30/x

Solving for x, we get x = 15%. Therefore, the percentage change in price that brought about a 30% increase in quantity supplied is 15%. So, the answer is B.

Question 4

Bringing oil to the market is a relatively long and costly process.The whole process from exploration to pumping significant amounts of oil can take years.What does this indicate about the price elasticity of supply for oil?
A)The elasticity coefficient is likely to be very high and supply is inelastic.
B)The elasticity coefficient is likely to be close to zero and supply is perfectly elastic.
C)The elasticity coefficient is likely to be low and supply is highly inelastic.
D)The elasticity coefficient is likely to be low and supply is highly elastic.

Accepted Answer

The fact that bringing oil to the market is a lengthy and expensive process suggests that it is difficult for oil producers to change the quantity of oil supplied quickly in response to changes in price. This indicates low price elasticity of supply, meaning that changes in price will have only a small impact on the quantity of oil supplied. Therefore, Choice C - the elasticity coefficient is likely to be low and supply is highly inelastic - is the best choice.

Question 5

Figure 6-10
 
-Refer to Figure 6-10.A unit-elastic supply curve is shown in
A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.

Accepted Answer

A unit-elastic supply curve is a straight line that passes through the origin, indicating that the percentage change in quantity supplied is equal to the percentage change in price. Panel C typically represents this scenario.

Question 6

Figure 6-10
 
-Refer to Figure 6-10.A perfectly inelastic supply curve is shown in
A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.

Accepted Answer

The perfectly inelastic supply curve is a vertical line, which is shown in Panel A.

Question 7

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is
A)unit elastic.
B)perfectly elastic.
C)inelastic.
D)elastic.

Accepted Answer

When the percentage increase in price leads to a proportionately larger percentage increase in quantity supplied, it implies that the suppliers are responsive to price changes. Hence, supply is considered elastic.

Question 8

The price elasticity of an upward-sloping supply curve is always
A)positive.
B)negative.
C)greater than one.
D)impossible to determine.

Accepted Answer

The price elasticity of supply measures the responsiveness of quantity supplied to a change in price. An upward-sloping supply curve indicates a positive relationship between price and quantity supplied, meaning that as price increases, quantity supplied also increases. Therefore, the price elasticity of an upward-sloping supply curve is always positive.

Question 9

Most food products have low income and price elasticities of demand.

Accepted Answer

This statement is generally true. Most food products are considered to be necessities and therefore have lower income and price elasticities of demand, meaning that changes in price or income will have a smaller effect on the quantity demanded. However, there may be exceptions for luxury or specialty food products that have higher elasticities of demand.

Question 10

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is
A)unit elastic.
B)perfectly elastic.
C)inelastic.
D)elastic.

Accepted Answer

When a given percentage decrease in price leads to a proportionately smaller percentage decrease in quantity supplied, supply is considered to be inelastic. Inelastic supply means that the quantity supplied is not responsive to price changes, which indicates that the supply curve is relatively steep.

Question 11

The price elasticity of supply is equal to
A)the value of the slope of the supply curve.
B)the change in quantity supplied divided by the change in price.
C)the percentage change in price divided by the percentage change in quantity supplied.
D)the percentage change in quantity supplied divided by the percentage change in price.

Accepted Answer

The price elasticity of supply is measured as the percentage change in quantity supplied divided by the percentage change in price. This formula helps in determining how responsive the quantity supplied is to the change in price. Choice A is incorrect because the slope of the supply curve indicates the marginal cost of producing an additional unit. However, it is not related to the elasticity of supply. Choice B is incorrect because it measures the slope of the supply curve, which is the same as the elasticity in the case of a linear supply curve only. Choice C is incorrect because it measures the elasticity of demand instead of elasticity of supply.

Question 12

The price elasticity of the supply of teenage labor services is approximately 1.36.Suppose the minimum wage rises from $7.25 per hour to $8.75.Using the midpoint formula, what is the approximate change in the quantity of teenage labor supplied?
A)7.3 percent
B)14.4 percent
C)25.5 percent
D)There is insufficient information to answer the question.

Accepted Answer

The answer of The price elasticity of the supply of...

Question 13

Figure 6-10
 
-Refer to Figure 6-10.A perfectly elastic supply curve is shown in
A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.

Accepted Answer

The answer of Figure 6-10
 
-Refer to Figure 6-10.A perfectly...

Question 14

Figure 6-11
 
-Refer to Figure 6-11.What is the value of the price elasticity of supply between g and h?
A)20 percent
B)0.5
C)2
D)0.02

Accepted Answer

Price elasticity of supply = percentage change in quantity supplied / percentage change in price. Moving from point g to point h, the quantity supplied increases from 12 to 24 (100% increase) while the price increases from $10 to $20 (100% increase). Therefore, the price elasticity of supply between g and h is 100% / 50% = 2.

Question 15

Figure 6-10
 
-Refer to Figure 6-10.The supply curve on which price elasticity changes at every point is shown in
A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.

Accepted Answer

The answer of Figure 6-10
 
-Refer to Figure 6-10.The supply...

Question 16

If firms do not increase their quantity supplied when price changes, then supply is
A)perfectly elastic.
B)perfectly inelastic.
C)inelastic.
D)elastic.

Accepted Answer

Perfectly inelastic supply means that the quantity supplied remains the same regardless of any change in the price. Therefore, the firms do not increase their quantity supplied when the price changes, which implies that the supply is perfectly inelastic.

Question 17

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good.Calculate the price elasticity of supply and characterize the product.
A)2; The product is elastic.
B)0.2; The product is inelastic.
C)0.5; The product is inelastic.
D)50%; The product is inelastic.

Accepted Answer

Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price.
In this case, the percentage change in quantity supplied is 2 percent and the percentage change in price is 4 percent. 
So, price elasticity of supply = (2/4) = 0.5
Since the value of price elasticity of supply is less than 1, the product is considered inelastic. Therefore, option C is the correct answer.

Question 18

An increase in the demand for green tea raises the price of green tea from $16 a pound to $20 a pound.As a result, quantity supplied increases by 30 percent.Using the midpoint formula, what is the value of the price elasticity of supply?
A)1.35
B)1.875
C)2.22
D)7.5

Accepted Answer

The answer of An increase in the demand for green...

Question 19

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units.Use the midpoint formula to calculate the price elasticity of supply.
A)1.22
B)1.0
C)0.82
D)0.07

Accepted Answer

The price elasticity of supply is calculated using the midpoint formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(10,000 - 8,000) / (10,000 + 8,000) / 2] / [(0.90 - 0.75) / (0.90 + 0.75) / 2] = 1.22.

Question 20

The government of Bassaland is looking for new revenue sources.It is considering imposing an excise tax on two goods: palm wine and diapers.If the price elasticity of demand for the goods are -0.47 and -1.89 respectively, which good should it tax if the goal is to raise revenue? If the government wants to tax only one good, which good should it tax if the goal is to discourage consumption? Explain your answer.

Accepted Answer

The answer of The government of Bassaland is looking for...

Quiz 6: Elasticity: the Responsiveness of Demand and Supply

Suppose the value of the price elasticity of supply is 4.What does this mean?

Price elasticity of supply is used to gauge

The price elasticity of supply for umbrellas is 2.Suppose you're told that following a price increase, quantity supplied increased by 30 percent.What was the percentage change in price that brought this about?

Bringing oil to the market is a relatively long and costly process.The whole process from exploration to pumping significant amounts of oil can take years.What does this indicate about the price elasticity of supply for oil?

Figure 6-10 -Refer to Figure 6-10.A unit-elastic supply curve is shown in

Figure 6-10 -Refer to Figure 6-10.A perfectly inelastic supply curve is shown in

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is

The price elasticity of an upward-sloping supply curve is always

Most food products have low income and price elasticities of demand.

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

The price elasticity of supply is equal to

The price elasticity of the supply of teenage labor services is approximately 1.36.Suppose the minimum wage rises from $7.25 per hour to $8.75.Using the midpoint formula, what is the approximate change in the quantity of teenage labor supplied?

Figure 6-10 -Refer to Figure 6-10.A perfectly elastic supply curve is shown in

Figure 6-11 -Refer to Figure 6-11.What is the value of the price elasticity of supply between g and h?

Figure 6-10 -Refer to Figure 6-10.The supply curve on which price elasticity changes at every point is shown in

If firms do not increase their quantity supplied when price changes, then supply is

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good.Calculate the price elasticity of supply and characterize the product.

An increase in the demand for green tea raises the price of green tea from $16 a pound to $20 a pound.As a result, quantity supplied increases by 30 percent.Using the midpoint formula, what is the value of the price elasticity of supply?

Suppose that the price of a money clip increases from $0.75 to $0.90 and quantity supplied rises from 8,000 units to 10,000 units.Use the midpoint formula to calculate the price elasticity of supply.