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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

Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand will differ between necessities and luxuries.

The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers?

The equation for a demand curve is P = 48 – 3Q. What is the elasticity in moving from a quantity of 5 to a quantity of 6?

What is the price elasticity of supply? Can you explain it in your own words?

Transatlantic air travel in business class has an estimated elasticity of demand of 0.62, while transatlantic air travel in economy class has an estimated price elasticity of 0.12. Why do you think this is the case?
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