ECONOMICS
SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If a 4% increase in price leads to a increase in the quantity supplied of 8%?A. Supply is price elasticB. Supply is income elasticC. Price elasticity of demand is-2D. Price elasticity of supply is-2
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A
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B
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C
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D
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Explanation:
Detailed explanation-1: -When a 5% increase in price leads to an 8% increase in quantity supplied, supply is relatively inelastic. When a 9% increase in price leads to a 6% increase in quantity supplied, supply is relatively inelastic.
Detailed explanation-2: -Answer and Explanation: The correct answer is c. The income elasticity is 0.4 and the good is a normal good. The good is a normal good because demand rises as income rises.
Detailed explanation-3: -When a 5% increase in income causes a 3% drop in quantity demanded of a good: a. the income elasticity is 0.6 and the good is an inferior good.
Detailed explanation-4: -In case of perfectly inelastic demand the change in price will have no effect on the quantity demanded.
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