Given percentage change in supply and the price elasticity of supply, explain how percentage change in equilibrium price varies as the price elasticity of demand changes from 0 to infinity.
What will be an ideal response?
The price-change formula to predict the change in equilibrium price resulting from a change in supply is
.
Consider two extreme cases. If Ed = 0 (demand is perfectly inelastic), percentage change in equilibrium price is just the negative value of the ratio of percentage change in supply to the price elasticity of supply. If Ed = ?, percentage change in equilibrium price approaches zero.
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Define the short-run industry supply curve. Explain the two factors that can cause the short-run industry supply curve to shift to the right
What will be an ideal response?
Your friend owns a snow cone stand that he works by himself. He produces about 25 snow cones per hour. He wants to be able to produce twice as many snow cones per hour so he buys a second machine
He notices that he can only produce 10 more snow cones an hour. He jokes that he could have doubled his output with the second machine if he only had four hands. Using your knowledge of the production process, explain to your friend what you think has happened when he added more capital to his production process.
Holding all other forces constant, if increasing the price of a good leads to a decrease in total revenue, then the demand for the good must be
a. unit elastic. b. inelastic. c. elastic. d. None of the above is correct because a price increase always leads to an decrease in total revenue.
We can show economic growth in terms of the production possibility curve by:
A. shifting the production possibility curve outward. B. shifting from a point inside the curve to a point on the production possibility curve. C. movement along the production possibility curve. D. jumping to a point outside the production possibility curve.