Question

In: Economics

Briefly explain why you think the following statements are true, false, or uncertain. Your grade will...

Briefly explain why you think the following statements are true, false, or uncertain.

Your grade will depend largely on the quality of your explanations.

  1. A change in the distribution of income that leaves total income constant will not shift the market demand curve for a product providing
  1. Everyone has an income elasticity of demand of zero for the product.
  2. Everyone has the same income elasticity of demand for the product.
  3. Individuals have differing income elasticities for the product, but the average income elasticity for income gainers is equal to the average income elasticity for income losers.
  1. In the very short run quantity supplied is absolutely fixed.
  2. If the market for hula‑hoops is characterized by a very inelastic supply curve and a very elastic demand curve, an inward shift in the supply curve would be reflected primarily in the form of higher output.
  3. The market supply curve for any good in short run is the horizontal summation of individuals' short-run supply curves.

Solutions

Expert Solution

1. Answer iii

Income elasticity of demand is nothing but the change in demand with respect to a change in income. For the demand curve to be constant, it's obvious that the nett change in income elasticity should be 0. For this to happen, the average income elasticities of income losers equals to average income elasticities of income of gainers so that the demand curve is unchanged.

a. True

In a very short run period, the inputs in a production process are constant or fixed, which translates that the quantity supplied is also fixed. In this short span of time, the feasibility of supplying additional product is less. Hence the quantity supplied is constant.

b. False

A shift to the left in a supply curve essentially means that the quantity supplied will be less for the same price. Hence the output decreases

c. True

In this case, the only way to know about the supply market as a whole is to add each of them individually so that we get the total supply at each price.

Hope this helps. Do hit the thumbs up. Cheers!

Rahul Sunny answered 2 years ago
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