Question

Elasticity of demand depends on ______ while the elasticity of supply depends on _________ ? (2 points)

a. Poor availability of complementary goods ; How fast opportunity cost falls

b. Large availability of complementary goods ; How fast opportunity cost rises

c. Poor availability of substitute goods ; How fast opportunity cost rises

d. Large availability of substitute goods ; How fast opportunity cost rises

e. None of the above

Which of the following would you expect to have the least elastic demand? (Hint: For each option below, find out which one has the least number of substitutes ) (1 point)

a. Food

b. Bread

c. Multigrain bread

d. Multigrain grain bread from Ingles

e. All the above items will have the same elasticity of demand

What would happen in the market for oatmeal cookies if the price of multigrain cookies ( a substitute) increased and a huge flood destroys a significant portion of the wheat plants from which oats are made? ( 2 points) a. The equilibrium price of oats increases but the impact on equilibrium quantity is uncertain

b. The equilibrium price of oats decreases but the impact on equilibrium quantity is uncertain

c. The equilibrium quantity of oats increases but the impact on equilibrium price is uncertain

d. The equilibrium quantity of oats decreases but the impact on equilibrium price is uncertain

Which of the following options would make the demand for Hershey’s chocolate syrup more elastic? ( 2 points) a. An improvement in quality of Hershey’s chocolate syrup

b. Launching of five other chocolate syrups by five other companies

c. Hershey’s goes bankrupt

d. Chocolate syrup is found to increase the risk of diabetes

Total Points

Answer 1

1.

Option d. Large availability of substitute goods, How fast opportunity cost rises

The more possible substitutes there are for a given good or service, the greater the elasticity. When several close substitutes are available, consumers can easily switch from one good to another even if there is only a small price change.

The supply elasticity depends on whether the quantity supplied changes by a larger percentage than the price change. Opportunity costs represent the potential benefits an individual, investor, or business misses when choosing one alternative over another. So, the elasticity of supply depends on how fast the opportunity cost rises.

2.

Order of substitutes available for food will be in the order of highest to lowest:

Food>Bread>Multigrain bread>Multigrain grain bread from Ingles

So food will have the highest elasticity of demand as it has the highest substitutes.

So the option is: a. Food

3.

The option is d. The equilibrium quantity of oats decreases, but the impact on equilibrium price is uncertain

After the flood, the quantity supplied has decreased, so it is sure that the equilibrium quantity of oats decreases. For the price, if it is increased as to the price of its substitute, multigrain cookies. Then, this would be troubling in the long run as there is no adequate quantity to be supplied. However, if the price remains the same, The cookies will sell out well. But what about the demand after the long run and the loss due to flood. So, the price is uncertain.

4.

The option is b. Launching of five other chocolate syrups by five other companies

A small price change can make people change to other substitutes, thereby making it more elastic. So this option is the most applicable.

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