Question

Are the following statements true or false? Explain briefly.

a) The supply of apartments is more inelastic in the short run than the long run.

b) It makes no sense to compare elasticities for different goods, because that is like comparing apples and oranges.

c) The cross-price elasticity will always be positive for complements.

d) The demand for refrigerators is more inelastic in the short run than the long run.

e) If a 10 percent increase in the price of tea causes a 20 percent decrease in the quantity of tea demanded in Turkey, we would say that the demand for tea in Turkey is elastic.

Answer 1

a) True
This is because in short run it is difficult to vary the supply of apartments whereas in the long run enough time is available to vary the supply. Thus, supply of apartments is more inelastic in the short run than the long run.

b) True
This is true as demand for a commonodity varies due to factors like its price, price of the related commodity, income but not due to some unrelated good.

c) False
It is always negative for complements because as price of a commodity increases/decreases, quantity demanded of complement will decrease/increase.

d) True
In short run, tastes and preferences can not be changed easily whereas in the long run they can vary thus demand for refrigerators in more inelastic in short run than the long run.

e) True
As percentage change in demand is greater than the percentage change in price so elasticity is greater than 1. Thus, demand for tea in Turkey is elastic.