Question

Supply is elastic whenever the value of the elasticity of supply is positive and greater than 1.

a) True

b) False

The price elasticity of supply is calculated as the change in supply divided by the change in price.

a) True

b) False

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

a) True

b) False

The demand for heating oil in the short run is more elastic than the long run demand for heating oil.

a) True

b) False

Answer 1

Since the elasticity of supply can be defined as the measurement of the degree of the responsiveness of the quantity supply due to the change in the price level.

Price elasticity of supply= % change in the quantity supply/ % change in the price

In the short-run elasticity of supply is inelastic because in short-run some factors are fixed and some are variables. But in the long-run all factors of production are variable. Hence in the long-run supply curve becomes relatively elastic compare to short-run. This is because for producing more, more inputs are required that cannot be increased suddenly.

1.

When value of elasticity of supply is equal to 1, then elasticity of supply is unit elastic.

When value of elasticity of supply is less than 1, then elasticity of supply is inelastic.

When value of elasticity of supply is greater than 1, then elasticity of supply is elastic.

Hence it can be said that Supply is elastic whenever the value of the elasticity of supply is positive and greater than 1.

Hence the given statement is true.

2.

Since the elasticity of supply can be defined as the measurement of the degree of the responsiveness of the quantity supply due to the change in the price level.

Price elasticity of supply= % change in the quantity supply/ % change in the price

Hence the given statement is false.

Hence option b is the correct answer.

3.

Normal good is that good which has positive income elasticity. It means with the increase in the income, the quantity demand for the normal good increases.

On the other hand, inferior good has negative income elasticity. It means with the increase in the income, the quantity demand for the inferior good decreases.

Since income elasticity measures the effect of change in the income of the consumers on the demand for the goods.

Income elasticity of demand of X = % change in the quantity demand of good X/ % change in the Income.

Hence it can be said that if the income elasticity for canned food is 0.8, then canned food is a normal good.

Hence the given statement is false.

.4. In the short-run elasticity of supply is inelastic because in short-run some factors are fixed and some are variables. But in the long-run all factors of production are variable. Hence in the long-run supply curve becomes relatively elastic compare to short-run. This is because for producing more, more inputs are required that cannot be increased suddenly.

Hence the demand for heating oil in the short run is less elastic than the long run demand for heating oil.

Hence the given statement is false.