Question

Do each of the following, where indicated include a graph along with a full, written explanation....

Do each of the following, where indicated include a graph along with a full, written explanation.

Part A. What is the price elasticity of demand? Can you explain it in your own words?

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

Part C. Describe the general appearance of a demand or a supply curve with zero elasticity. Provide an illustration. Provide an example of a good that you think most likely has a demand curve with zero price elasticity.

Part D. Describe the general appearance of a demand or a supply curve with infinite elasticity. Provide an example of a good or service that you believe approximates this situation, justify your choice. Include an illustration.

Part E. If demand is elastic, will shifts in supply have a larger effect on equilibrium quantity or on price than if demand is inelastic.   Include an illustration to support your explanation.

Homework Answers

Answer #1

A) price elastocity of demand is the degree of responsivess of quantity demanded due to change in its own price keeping other factor constant. I.e. When price of X decreases by 1% then what is the % increase in quantity demanded is known as elasticity of demand. It is normally negative leading an inverse relation between price and quantity demand

B) Price elasticity of supply is normally positive which says that as price increases quantity supplied increases. It also means the degree of responsiveness of quantity supplied due to increase in price ceteris paribus.

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