Ch6 - Supply and Demand Elasticity

Question 1

Perfectly Elastic

Elastic

Unit Elastic

Inelastic

Perfectly Inelastic

Answer 1

Perfectly Elastic : (E = ∞) |

Elastic: (E > 1 )

Unit Elastic: ( E = 1 ) ⟀

Inelastic: ( E

Question 2

Substitution Factors that affect Demand Elasticity

Answer 2

1. Time Period — larger time period, more elastic demand
2. Necessity/Luxury — less essential, more elastic demand
3. Market Definition — narrow definition, more elastic demand (e.g. transportation via bus, substitute with car. Vs transportation on the whole, no substitution)
4. Cost relative to one’s budget — larger portion of budget: more elastic, smaller portion of budget: less elastic

Question 3

Substitution Factors that affect Supply Elasticity

Answer 3

Time

1. Instantaneous period: quantity supplied is fixed, Perfectly Inelastic supply
2. Short run: somewhat elastic, few opportunities for substitution
3. Long run: highly elastic, more opportunities for substitution