Question

5. A number of food vans are parked in front of Old Mill Building on UVM campus during the school year. The food vendors now take credit cards, and as a result the demand for their food has increased. Each of the vendors would like to be able to accommodate the increase in demand. How relatively elastic is the supply of food from the vans in the immediate run (this week), the intermediate run (a month or so), and the long run (next year). What determines the relative elasticity in this case? What are the factors that you are considering? (HINT: Think about what you would need to do if you owned the van to serve more food more quickly to a larger number of people. What can you do/purchase/retrofit in a week? a month? a year?)

6. Draw a graph to illustrate each of these situations:

a. “Christine gets a call that her son was seriously injured on a hiking trip in Colorado and is in the intensive care unit of a Denver hospital. Christine lives in Boston.” Draw Christine’s demand curve for an airline ticket from Boston to Denver today.”

b. “You sell rare and antique coins at flea markets. Today you are selling at a booth in Burlington, VT. A bus filled with tourists arrive and many are very, very interested in purchasing your coins.” Draw your supply curve for rare and antique coins todays.

c. “I refuse to ever spend any more than $15 for a bottle of wine, and at that price I will buy wine to drink, make vinegar, use it to cook, and use it for gifts.”

Answer 1

5. Elasticity can be defined as the responsiveness in quantity supplied with respect to change in price. As the supply of food by the food vans can be easily accommodated, so the supply would increase as the demand changes. Supply would be highly elastic in the immediate run, intermediate run and in the long run. This is because the supply can be modified at any point of time without much efforts.

Factors which can be considered are :

Availability of raw materials

Availability of labor

Technology / Cooking equipments used to produce the food

6. a) As Christine's son is seriously injured, he would go to meet him at any cost. Thus his demand for airline ticket is highly inelastic.

b) Supply curve is highly elastic as there is a high demand of unique coins and thus they are ready to pay high price for the coins.

c) Demand is highly elastic as the product can be put to multiple uses, so if the price increases, the demand would come down drastically. People will use it only for the most important usage and thus the demand would come down drastically.