ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A pay hike from $400 to $800 monthly raises military enlistees from 12, 000 to 28, 000 monthly
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A 20% increase in goat milk production follows a 40% rise in the price of cow milk.
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Per bushel wheat prices fall from $8 to $5; production drops from 460 to 340 million tons.
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Income rises from $2, 500 to $3, 500 and auto sales rise from 6 to 18 million annually.
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Detailed explanation-1: -Four types of elasticity are demand elasticity, income elasticity, cross elasticity, and price elasticity.
Detailed explanation-2: -If a firm lowers its price and its total revenue increases as a result, this means that the percent change in quantity demanded is greater than the percent change in the price. Because the quantity demanded is changing more than the change in price, the demand curve is elastic.
Detailed explanation-3: -Supply is normally more elastic in the long run than in the short run for produced goods, since it is generally assumed that in the long run all factors of production can be utilized to increase supply, whereas in the short run only labor can be increased, and even then, Page 2 changes may be prohibitively costly.
Detailed explanation-4: -Longer the time period, greater will be the elasticity of supply. Because, over a long period of time, more and more factors are easily available and their input can be changed to increase (or decrease) output of the commodity.