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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

The supply curve with constant unitary elasticity is a straight line because there is a proportional increase in price and quantity.

Step by step solution

01

Step 1. Introduction:

A condition in which a price shift of one percent leads in a quantity change of one percent is known as constant unitary elasticity in either a supply or demand curve. A straight line represents the supply curve with unitary elasticity, and that line passes through the origin. There is an equivalent differential in quantity among each pair of supply curve nodes.

02

Step 2. Explanation:

The % output rises on the horizontal axis exactly match the percentage rising prices on the vertical axis along the constant unitary elasticity supply curve, indicating that this supply curve has constant unitary elasticity at all places. Because the curve slopes higher and both prices and outputs rise correspondingly, the constant unitary elasticity is a straight line.

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Most popular questions from this chapter

For each of the following pairs of goods, which good would you expect to have more elastic demand and why?

a. required textbooks or mystery novels

b. Adele recordings or pop music recordings in general

c. subway rises during the next six months or subway rides during the next five years

d. root beer or water

30. In a market where the supply curve is perfectly inelastic, how does an excise tax affect the price paid by consumers and the quantity bought and sold?

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.

What is the formula for the wage elasticity of labor supply?

In competitive markets, farmers adopt new technologies that will eventually reduce their revenue because

a. each farmer is a price taker.

b. farmers are short-sighted.

c. regulation requires the use of best practices.

d. consumers pressure farmers to lower prices.
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