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Chapter 5: Q. 4 (page 129)

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

Short Answer

Expert verified

Because price and quantity increase proportionally.

Step by step solution

01

Step 1. Definition

Demand is said to be unitary elastic when a proportionate change in price causes equal proportionate change in quantity. In other words, quantity demanded by the same percentage amount as the price.

02

Step 2. Explanation

A constant unitary elastic curve implies that throughout the curve the price elasticity of supply is 1. A supply curve is an upward sloping cuurve and since price and quantity change by the same percentage amount, the supply curve would be a straight line.

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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.

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

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 to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

Economists define normal goods as having a

positive income elasticity. We can divide normal goods

into two types: Those whose income elasticity is less

than one and those whose income elasticity is greater

than one. Think about products that would fall into each

category. Can you come up with a name for each

category?

Say that a certain stadium for professional football has 70,000 seats. What is the shape of the supply curve for tickets to football games at that stadium? Explain.
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