Question

The inputs used to produce cupcakes (e.g., flour, sugar, butter, and labor) are also used to produce cookies, cakes, muffins, pies and many other goods. This suggests that:

Select one:

a. the supply curve for cupcakes is downward sloping.

b. the elasticity of supply of cupcakes is relatively high.

c. the elasticity of supply of cupcakes is relatively low.

d. cupcakes are a normal good.

Answer 1

It has been provided that inouts used in the production of cupcakes can also be used to produce cookies, cakes, muffins etc.

This implies that resources used to produce cupcakes can easily be transferred to the production of other goods as well.

When inputs used in production of a good are easily transferable to the production of other goods then in that case elasticity of supply of such good is relatively high.

So, given information suggests that the elasticity of supply of cupcakes is relatively high.

The correct answer is the option (b).