Chapter 48, Problem 2FRQ

a)

To determine

Price elasticity of supply

Explanation of Solution

  $\begin{array}{c}\text{Price elasticity of supply = }\frac{\text{Percentage change in supply of corn}}{\text{percentage change inprice of corn}}\\ \text{= }\frac{40\%}{\text{20\%}}\\ \text{= 2}\end{array}$

The price elasticity of supply is 2.

Economics Concept Introduction

Introduction: Price elasticity of supply refers to the measure how the supply is sensitive to price or how the change in supply affects the price of the good.

b)

To determine

Whether the supply is elastic or inelastic.

Explanation of Solution

In this case, the price elasticity of supply is greater than 1 which means it is elastic. It happens because the proportional change in quantity supplied is far more than the change in price. In this case, the materials needed to produce more goods are easily accessible, and the overall cost would be low to keep the production up or down.

Economics Concept Introduction

Introduction: Price elasticity of supply refers to the measure how the supply is sensitive to price or how the change in supply affects the price of the good.

c)

To determine

Whether perfect elastic or perfectly inelastic supply on a labeled graph of a supply curve

Explanation of Solution

  

A perfect elastic supply curve is horizontal line that shows the price remain same no matter what the supply is.

Economics Concept Introduction

Introduction: Price elasticity of supply refers to the measure how the supply is sensitive to price or how the change in supply affects the price of the good.

d)

To determine

The availability of inputs for a firm with the supply curve.

Explanation of Solution

The availability of inputs for a firm can be shifted into/out of production at the lower cost and this input is readily available for the firm. The quantity that can be produced and delivered can be impacted by the availability of production-related elements, such as labor or raw materials. And, the quantity of a good that is offered by providers at all prices will decrease as the cost of producing that good would rise.

Economics Concept Introduction

Introduction: Price elasticity of supply refers to the measure how the supply is sensitive to price or how the change in supply affects the price of the good.