Chapter 5: Q7. (page 115)
How is the price elasticity of supply calculated? Explain what it measures?
The price elasticity of supply is calculated by thepercentage change in quality supplied by the percentage change in price. It is measured byhow much quality is provided to change in price.
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A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many drivers cross the bridge. The city thus gathers information about the elasticity of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion? Explain.
32. Suppose you could buy shoes one at a time, rather than in pairs. What do you predict the cross-price elasticity for left shoes and right shoes would be?
Suppose that business travellers and vacationers have the following demand for airline tickets from Chicago to Miami:
Price | Quantity Demanded (business travellers) | Quantity Demanded (vacationers) |
\(150 | 2,100 tickets | 1,000 tickets |
200 | 2,000 | 800 |
250 | 1,900 | 600 |
300 | 1,800 | 400 |
Can you think of an industry (or product) with near infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the price?
From the data in Table 5.5 about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.
| Points | P | Q |
| A | 60 | 3,000 |
| B | 70 | 2,800 |
| C | 80 | 2,600 |
| D | 90 | 2,400 |
| E | 100 | 2,200 |
| F | 110 | 2,000 |
| G | 120 | 1,800 |
| H | 130 | 1,600 |
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