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Chapter 5: Q.36 (page 131)

The equation for a supply curve is P = 3Q – 8. What is the elasticity in moving from a price of 4 to a price of 7?

Short Answer

Expert verified

The supply curve is inelastic at this point.

Step by step solution

01

Definition

Price Elasticity: Elasticity is a metric for calculating the percentage change in one variable as a result of a percentage change in another. The elasticity of demand is calculated by looking at how the price of goods changes over time.

02

Explanation

The supply curve is

P=3Q-8

At P=4, Q=4

At P=7, Q=5

The quantity offered increases as the price rises. Let's use the average formula to compute supply price elasticity.

% Change in quantity =Qfinal-Qinitialaveragequantity×100%=5-44.5×100%=22.2%

% Change in price =

Pfinal-Pinitialaverageprice×100%=7-45.5×100%=54.5%

Price elasticity of demand =%Changeinquantity%Changeinprice=22.2%54.5%=0.41

The elasticity of supply is 0.4thus inelastic.

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Most popular questions from this chapter

Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

What is the formula for the income elasticity of demand?

Why is the supply curve with constant unitary elasticity a straight line?

If demand is inelastic, will shifts in supply have a larger effect on equilibrium price or on quantity?

Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?
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