Question

12. Elastic and inelastic supply 

The following graph shows the supply of a good 

For each of the regions, use the midpoint method to identify whether the supply of this good is elastic or inelastic. 

Elastic                        Inelastic   Region 

Between Y and Z

Between W and X

True or False: For high levels of quantity supplied where firms have reached near maximum capacity, supply becomes more elastic because firms may need to invest in additional capital in order to further increase production.

Answer 1

Answer : Using Mid point formula :

Mid point formula :

E _s = ( Q ₂ - Q ₁)/ ( Q ₂ + Q ₁) /2 / ( P ₂ - P ₁) / ( P ₁ + P ₂) /2

Between point Y and Z :

E _{s =} ( 72-64)/(72+64)/2/(180-90)/(180+90)/2

E_{​​​​​​S} = 0.1766

Supply is inelastic with the price.

Between point W and X:

E _s = ( 20-8)/(20+8)/2/(20-15)/(20+15)/2= 3

Supply is elastic with the price.

The Statement is true as it shows that at higher level of output Supply remain inelastic with the change in the price level.As there is a requirement of huge capital for increasing the production.

Answer 2

ans -Between Y & Z the elasticity of supply=0.18-inelastic supply

Midpoint formula={(Qf-Qi)/[(Qf+Qi)divided by 2]} divided by{(Pf-Pi)/[(Pf+Pi)divided by 2]}

Inserting the given values, we get,

={(72-64)/[(72+64)divided by 2]} divided by{(180-90)/[(180+90)divided by 2]}

Where Q_i = initial quantity supplied, Q_f = final quantity supplied, P_i = initial price and P_f = final price.

Between W & Z the elasticity of supply=3=elastic

Ans= False

At greater levels of quantity supplied where companies have reached almost maximum capacity, the supply becomes more inelastic as companies require additional capital to further augment production.

Answer 3

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Pi = 90, Q, = 64 P2 = 190, $2 = 72 : / 72-641 72464 180-90 190790 92764 1700 tano) 1& x 270 = 0.176 Elasticity of supply b/w Y and 2 = 0.176 Wie less than I, soit in - relantic Region Elastic Inelantic # B/w wand X Bw. Y and 2 # TRUE in New Because the capital will lead invest machine and technology whee Production prouen