True or False: Indicate whether each of the following statements is true or false and explain why.
4. The industry supply curve could be downward sloping in the long run.
Answer : 4) False.
The long run supply curve is vertical. The short run supply curve is downward sloping. Therefore, the given statement is false.
The equilibrium price = $1000
New price = $800
Changes in price (P) = 1000 - 800 = $200
Elasticity of demand = Changes in quantity demanded / Changes in price
=> 1.2 = Changes in quantity demanded / 200
=> Changes in quantity demanded = 1.2 × 200 = 240.
Elasticity of supply = Changes in quantity supplied / Changes in price
=> 0.5 = Changes in quantity supplied / 200
=> Changes in quantity supplied = 0.5 × 200 = 100.
Therefore, for new price level $800 the shortage of apartment is (240 - 100) = 140.
Therefore, the given statement is false.
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