曼昆经济学原理英文版文案加习题答案5章ELASTICITY AND ITS APPLICATION

曼昆经济学原理英文版文案加习题答案5章ELASTICITYANDITSAPPLICATION曼昆经济学原理英文版文案加习题答案5章ELASTICITYANDITSAPPLICATION曼昆经济学原理英文版文案加习题答案5章ELASTICITYANDITSAPPLICATION曼昆经济学原理英文版文案加习题答案5章ELASTICITYANDITSAPPLICATION编制仅供参考审核批准生效日期地址：电话：传真:邮编:55ELASTICITYANDITSAPPLICATIONELASTICITYANDITSAPPLICATIONWHAT’SNEWINTHESEVENTHEDITION:Therearenomajorchangestothischapter.LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand: themeaningoftheelasticityofdemand. whatdeterminestheelasticityofdemand. themeaningoftheelasticityofsupply. whatdeterminestheelasticityofsupply. theconceptofelasticityinthreeverydifferentmarkets(themarketforwheat,themarketforoil,andthemarketforillegaldrugs).CONTEXTANDPURPOSE:Chapter5isthesecondchapterofathree-chaptersequencethatdealswithsupplyanddemandandhowmarketswork.Chapter4introducedsupplyanddemand.Chapter5showshowmuchbuyersandsellersrespondtochangesinmarketconditions.Chapter6willaddresstheimpactofgovernmentpolicesoncompetitivemarkets. ThepurposeofChapter5istoaddprecisiontothesupply-and-demandmodel.Weintroducetheconceptofelasticity,whichmeasurestheresponsivenessofbuyersandsellerstochangesineconomicvariablessuchaspricesandincome.Theconceptofelasticityallowsustomakequantitativeobservationsabouttheimpactofchangesinsupplyanddemandonequilibriumpricesandquantities.KEYPOINTS: Thepriceelasticityofdemandmeasureshowmuchthequantitydemandedrespondstochangesintheprice.Demandtendstobemoreelasticifclosesubstitutesareavailable,ifthegoodisaluxuryratherthananecessity,ifthemarketisnarrowlydefined,orifbuyershavesubstantialtimetoreacttoapricechange. Thepriceelasticityofdemandiscalculatedasthepercentagechangeinquantitydemandeddividedbythepercentagechangeinprice.Ifquantitydemandedmovesproportionatelylessthantheprice,thentheelasticityislessthanone,anddemandissaidtobeinelastic.Ifquantitydemandedmovesproportionatelymorethantheprice,thentheelasticityisgreaterthanone,anddemandissaidtobeelastic. Totalrevenue,thetotalamountpaidforagood,equalsthepriceofthegoodtimesthequantitysold.Forinelasticdemandcurves,totalrevenuemovesinthesamedirectionastheprice.Forelasticdemandcurves,totalrevenuemovesintheoppositedirectionastheprice. Theincomeelasticityofdemandmeasureshowmuchthequantitydemandedrespondstochangesinconsumers’income.Thecross-priceelasticityofdemandmeasureshowmuchthequantitydemandedofonegoodrespondstothepriceofanothergood. Thepriceelasticityofsupplymeasureshowmuchthequantitysuppliedrespondstochangesintheprice.Thiselasticityoftendependsonthetimehorizonunderconsideration.Inmostmarkets,supplyismoreelasticinthelongrunthanintheshortrun. Thepriceelasticityofsupplyiscalculatedasthepercentagechangeinquantitysupplieddividedbythepercentagechangeinprice.Ifquantitysuppliedmovesproportionatelylessthantheprice,thentheelasticityislessthanone,andsupplyissaidtobeinelastic.Ifquantitysuppliedmovesproportionatelymorethantheprice,thentheelasticityisgreaterthanone,andsupplyissaidtobeelastic. Thetoolsofsupplyanddemandcanbeappliedinmanydifferentkindsofmarkets.Thischapterusesthemtoanalyzethemarketforwheat,themarketforoil,andthemarketforillegaldrugs.CHAPTEROUTLINE:I. TheElasticityofDemandA. Definitionofelasticity:ameasureoftheresponsivenessofquantitydemandedorquantitysuppliedtooneofitsdeterminants.B. ThePriceElasticityofDemandandItsDeterminants1. Definitionofpriceelasticityofdemand:ameasureofhowmuchthequantitydemandedofagoodrespondstoachangeinthepriceofthatgood,computedasthepercentagechangeinquantitydemandeddividedbythepercentagechangeinprice.2. DeterminantsofthePriceElasticityofDemanda. AvailabilityofCloseSubstitutes:themoresubstitutesagoodhas,themoreelasticitsdemand.b. NecessitiesversusLuxuries:necessitiesaremorepriceinelastic.c. Definitionofthemarket:narrowlydefinedmarkets(icecream)havemoreelasticdemandthanbroadlydefinedmarkets(food).d. TimeHorizon:goodstendtohavemoreelasticdemandoverlongertimehorizons.C. ComputingthePriceElasticityofDemand1. FormulaWorkthroughafewelasticitycalculations,startingwiththeexampleinthebook.Forprinciplesofeconomicscourseswherethereisnomathematicalprerequisite,thismaybedifficultforsomestudents.Workingthroughafewsimpleexampleswillhelptoalleviatesomeofthestudents’anxiety.Showeverystepofthealgebrainvolved.Workthroughafewelasticitycalculations,startingwiththeexampleinthebook.Forprinciplesofeconomicscourseswherethereisnomathematicalprerequisite,thismaybedifficultforsomestudents.Workingthroughafewsimpleexampleswillhelptoalleviatesomeofthestudents’anxiety.Showeverystepofthealgebrainvolved.2. Example:thepriceoficecreamrisesby10%andquantitydemandedfallsby20%.Priceelasticityofdemand=(20%)/(10%)=23. Becausethereisaninverserelationshipbetweenpriceandquantitydemanded(thepriceoficecreamroseby10%andthequantitydemandedfellby20%),thepriceelasticityofdemandissometimesreportedasanegativenumber.Wewillignoretheminussignandconcentrateontheabsolutevalueoftheelasticity.Studentshatethis!Explainthatitreallymakesthingseasierandmakesmoresensebecauselargerelasticities(inabsolutevalue)implygreatersensitivityandresponsiveness.Studentshatethis!Explainthatitreallymakesthingseasierandmakesmoresensebecauselargerelasticities(inabsolutevalue)implygreatersensitivityandresponsiveness.D. TheMidpointMethod:ABetterWaytoCalculatePercentageChangesandElasticities1. Becauseweusepercentagechangesincalculatingthepriceelasticityofdemand,theelasticitycalculatedbygoingfromonepointtoanotheronademandcurvewillbedifferentfromanelasticitycalculatedbygoingfromthesecondpointtothefirst.Thisdifferencearisesbecausethepercentagechangesarecalculatedusingadifferentbase.a. Awayaroundthisproblemistousethemidpointmethod.b. Usingthemidpointmethodinvolvescalculatingthepercentagechangeineitherpriceorquantitydemandedbydividingthechangeinthevariablebythemidpointbetweentheinitialandfinallevelsratherthanbytheinitiallevelitself.c. Example:thepricerisesfrom$4to$6andquantitydemandedfallsfrom120to80.%changeinprice=(6−4)/5×100=40%%changeinquantitydemanded=(120−80)/100x100=40%priceelasticityofdemand=40/40=1E. TheVarietyofDemandCurvesFigure1Figure1Toclearlyshowthedifferencesbetweenrelativelyelasticandrelativelyinelasticdemandcurves,drawagraphontheboardshowingarelativelyflatdemandcurveandoneshowingarelativelysteepdemandcurve.ShowthatanygivenchangeinpricewillresultinalargerchangeinquantitydemandedifthToclearlyshowthedifferencesbetweenrelativelyelasticandrelativelyinelasticdemandcurves,drawagraphontheboardshowingarelativelyflatdemandcurveandoneshowingarelativelysteepdemandcurve.Showthatanygivenchangeinpricewillresultinalargerchangeinquantitydemandedifthedemandcurveisrelativelyflat.Usethesamemethodwhendiscussingtheshapeofthesupplycurvelaterinthechapter.1. ClassificationofElasticitya. Whenthepriceelasticityofdemandisgreaterthanone,demandisdefinedtobeelastic.b. Whenthepriceelasticityofdemandislessthanone,thedemandisdefinedtobeinelastic.c. Whenthepriceelasticityofdemandisequaltoone,thedemandissaidtohaveunitelasticity.Activity1—HowtheBallBouncesActivity1—HowtheBallBouncesType: In-classdemonstrationTopics: Elastic,inelasticMaterialsneeded: Onerubberballandone“dead”ball.The“dead”ballismadeofshock-absorbingmaterialanddoesn’tbounce.Museumstoresandmagicshopscarrythem.Time: 1minuteClasslimitations: WorksinanysizeclassPurposeThisquick,butmemorable,demonstrationcanbeusedtointroducetheconceptsofelasticandinelastic.InstructionsBringtwostudentstothefrontoftheclass.Giveeachofthemaballandaskthemtobounceitoffthefloorandcatchit.Thestudentwiththerubberballcandothiseasily.Thestudentwiththe“dead”ballwillnotbeabletobounceithighenoughtocatch,nomatterhowhardheorshethrowsit.Explainthatoneballiselastic;itisresponsivetochange.Theotherballisinelastic;itrespondsverylittletochange.Thesephysicalpropertiesofelasticandinelasticareanalogoustotheeconomicconceptsofelasticandinelastic.2. Ingeneral,theflatterthedemandcurvethatpassesthroughagivenpoint,themoreelasticthedemand.3. ExtremeCasesa. Whenthepriceelasticityofdemandisequaltozero,thedemandisperfectlyinelasticandisaverticalline.b. Whenthepriceelasticityofdemandisinfinite,thedemandisperfectlyelasticandisahorizontalline.Makesurethatyouprovideseveralexamplesofgoodswiththesetypesofdemandcurves.Youmaywanttopointoutthatstudentswillseetheperfectlyelasticdemandcurveagainwhencompetitivefirmsarediscussed.Makesurethatyouprovideseveralexamplesofgoodswiththesetypesofdemandcurves.Youmaywanttopointoutthatstudentswillseetheperfectlyelasticdemandcurveagainwhencompetitivefirmsarediscussed.4. FYI:AFewElasticitiesfromtheRealWorld F. TotalRevenueandthePriceElasticityofDemandFigure2Figure21. Definitionoftotalrevenue:theamountpaidbybuyersandreceivedbysellersofagood,computedasthepriceofthegoodtimesthequantitysold.Anothertermforpricetimesquantityis“totalexpenditure.”Thistermissometimesusedinquestionsfoundinthestudyguideandtestbank.Itisalsoimportanttopointthisoutwhendiscussingthemarketforillegaldrugsattheendofthechapter.Anothertermforpricetimesquantityis“totalexpenditure.”Thistermissometimesusedinquestionsfoundinthestudyguideandtestbank.Itisalsoimportanttopointthisoutwhendiscussingthemarketforillegaldrugsattheendofthechapter.Studentsfindtherelationshipbetweenchangesintotalrevenueandelasticitydifficulttounderstand.Itmaytakeseveralthoroughdiscussionsofthismaterialbeforestudentswillbeabletomasterit.Studentsfindtherelationshipbetweenchangesintotalrevenueandelasticitydifficulttounderstand.Itmaytakeseveralthoroughdiscussionsofthismaterialbeforestudentswillbeabletomasterit.2. Ifdemandisinelastic,thepercentagechangeinpricewillbegreaterthanthepercentagechangeinquantitydemanded.Figure3Figure3a. Ifpricerises,quantitydemandedfalls,andtotalrevenuewillrise(becausetheincreaseinpricewillbelargerthanthedecreaseinquantitydemanded).b. Ifpricefalls,quantitydemandedrises,andtotalrevenuewillfall(becausethefallinpricewillbelargerthantheincreaseinquantitydemanded).3. Ifdemandiselastic,thepercentagechangeinquantitydemandedwillbegreaterthanthepercentagechangeinprice.a. Ifpricerises,quantitydemandedfalls,andtotalrevenuewillfall(becausetheincreaseinpricewillbesmallerthanthedecreaseinquantitydemanded).b. Ifpricefalls,quantitydemandedrises,andtotalrevenuewillrise(becausethefallinpricewillbesmallerthantheincreaseinquantitydemanded).4. Ifdemandisunitelastic,thepercentagechangeinpricewillbeequaltothepercentagechangeinquantitydemanded.a. Ifpricerises,quantitydemandedfalls,andtotalrevenuewillremainthesame(becausetheincreaseinpricewillbeequaltothedecreaseinquantitydemanded).b. Ifpricefalls,quantitydemandedrises,andtotalrevenuewillremainthesame(becausethefallinpricewillbeequaltotheincreaseinquantitydemanded).Pointouttheusefulnessofelasticityfromabusinessowner’spointofview.Studentsshouldbeabletoseewhyafirm’smanagerwouldwanttoknowtheelasticityofdemandforthefirm’sproducts.Pointouttheusefulnessofelasticityfromabusinessowner’spointofview.Studentsshouldbeabletoseewhyafirm’smanagerwouldwanttoknowtheelasticityofdemandforthefirm’sproducts.G. ElasticityandTotalRevenuealongaLinearDemandCurve

Figure4Figure41. Theslopeofalineardemandcurveisconstant,buttheelasticityisnot.a. Atpointswithalowpriceandahighquantitydemanded,demandisinelastic.b. Atpointswithahighpriceandalowquantitydemanded,demandiselastic.2. Totalrevenuealsovariesateachpointalongthedemandcurve.Notethatwhendemandiselasticandpricefalls,totalrevenuerises.Alsopointoutthatoncedemandisinelastic,anyfurtherdecreaseinpriceresultsinadecreaseintotalrevenue.Notethatwhendemandiselasticandpricefalls,totalrevenuerises.Alsopointoutthatoncedemandisinelastic,anyfurtherdecreaseinpriceresultsinadecreaseintotalrevenue.H. OtherDemandElasticities1. Definitionofincomeelasticityofdemand:ameasureofhowmuchthequantitydemandedofagoodrespondstoachangeinconsumers’income,computedasthepercentagechangeinquantitydemandeddividedbythepercentagechangeinincome.a. Formulab. Normalgoodshavepositiveincomeelasticities,whileinferiorgoodshavenegativeincomeelasticities.ALTERNATIVECLASSROOMEXAMPLE:ALTERNATIVECLASSROOMEXAMPLE:John’sincomerisesfrom$20,000to$22,000andthequantityofhamburgerhebuyseachweekfallsfrom2poundsto1pound.%changeinquantitydemanded=(1−2)/x100=%%changeinincome=(22,000−20,000)/21,000x100=%incomeelasticity=%/%=PointoutthathamburgerisaninferiorgoodforJohn.c. Necessitiestendtohavesmallincomeelasticities,whileluxuriestendtohavelargeincomeelasticities.2. Definitionofcross-priceelasticityofdemand:ameasureofhowmuchthequantitydemandedofonegoodrespondstoachangeinthepriceofanothergood,computedasthepercentagechangeinthequantitydemandedofthefirstgooddividedbythepercentagechangeinthepriceofthesecondgood.a. Formulab. Substituteshavepositivecross-priceelasticities,whilecomplementshavenegativecross-priceelasticities.ALTERNATIVECLASSROOMEXAMPLE:ALTERNATIVECLASSROOMEXAMPLE:Thepriceofapplesrisesfrom$perpoundto$perpound.Asaresult,thequantityoforangesdemandedrisesfrom8,000perweekto9,500.%changeinquantityoforangesdemanded=(9,500−8,000)/8,750x100=%%changeinpriceofapples=−/x100=40%cross-priceelasticity=%/40%=Becausethecross-priceelasticityispositive,thetwogoodsaresubstitutes.Makesurethatyouexplaintostudentswhythesignsoftheincomeelasticityandthecross-priceelasticitymatter.Thiswillundoubtedlyleadtosomeconfusionbecauseweignorethesignoftheown-priceelasticityofdemand.Youmaywanttoputtogetheratabletopresentthisdistinctiontostudents.Makesurethatyouexplaintostudentswhythesignsoftheincomeelasticityandthecross-priceelasticitymatter.Thiswillundoubtedlyleadtosomeconfusionbecauseweignorethesignoftheown-priceelasticityofdemand.Youmaywanttoputtogetheratabletopresentthisdistinctiontostudents.II. TheElasticityofSupplyA. ThePriceElasticityofSupplyandItsDeterminants1. Definitionofpriceelasticityofsupply:ameasureofhowmuchthequantitysuppliedofagoodrespondstoachangeinthepriceofthatgood,computedasthepercentagechangeinquantitysupplieddividedbythepercentagechangeinprice.2. DeterminantsofthePriceElasticityofSupplya. Flexibilityofsellers:goodsthataresomewhatfixedinsupply(beachfrontproperty)haveinelasticsupplies.b. Timehorizon:supplyisusuallymoreinelasticintheshortrunthaninthelongrun.B. ComputingthePriceElasticityofSupply1. Formula2. Example:thepriceofmilkincreasesfrom$pergallonto$pergallonandthequantitysuppliedrisesfrom9,000to11,000gallonspermonth. %changeinprice=–/×100=10% %changeinquantitysupplied=(11,000–9,000)/10,000×100=20% Priceelasticityofsupply=(20%)/(10%)=2C. TheVarietyofSupplyCurvesFigure5Figure51. Ingeneral,theflatterthesupplycurvethatpassesthroughagivenpoint,themoreelasticthesupply.2. ExtremeCasesa. Whentheelasticityisequaltozero,thesupplyissaidtobeperfectlyinelasticandisaverticalline.b. Whentheelasticityisinfinite,thesupplyissaidtobeperfectlyelasticandisahorizontalline.3. Becausefirmsoftenhaveamaximumcapacityforproduction,theelasticityofsupplymaybeveryhighatlowlevelsofquantitysuppliedandverylowathighlevelsofquantitysupplied.Figure6Figure6Again,youmaywanttopresentseveralexamplesofgoodsthatmayhavesupplycurveslikethese.Again,youmaywanttopresentseveralexamplesofgoodsthatmayhavesupplycurveslikethese.III. ThreeApplicationsofSupply,Demand,andElasticityA. CanGoodNewsforFarmingBeBadNewsforFarmersFigure7Figure71. Anewhybridofwheatisdevelopedthatismoreproductivethanthoseusedinthepast.Whathappens2. Supplyincreases,pricefalls,andquantitydemandedrises.3. Ifdemandisinelastic,thefallinpriceisgreaterthantheincreaseinquantitydemandedandtotalrevenuefalls.4. Ifdemandiselastic,thefallinpriceissmallerthantheriseinquantitydemandedandtotalrevenuerises.5. Inpractice,thedemandforbasicfoodstuffs(likewheat)isusuallyinelastic.a. Thismeanslessrevenueforfarmers.b. Becausefarmersarepricetakers,theystillhavetheincentivetoadoptthenewhybridsothattheycanproduceandsellmorewheat.c. Thismayhelpexplainwhythenumberoffarmshasdeclinedsodramaticallyoverthepasttwocenturies.d. Thismayalsoexplainwhysomegovernmentpoliciesencouragefarmerstodecreasetheamountofcropsplanted.B. WhyDidOPECFailtoKeepthePriceofOilHigh

Figure8Figure8LongRunShortRunLongRunShortRun1. Inthe1970sand1980s,OPECreducedtheamountofoilitwaswillingtosupplytoworldmarkets.Thedecreaseinsupplyledtoanincreaseinthepriceofoilandadecreaseinquantitydemanded.Theincreaseinpricewasmuchlargerintheshortrunthanthelongrun.Why2. Thedemandandsupplyofoilaremuchmoreinelasticintheshortrunthanthelongrun.Thedemandismoreelasticinthelongrunbecauseconsumerscanadjusttothehigherpriceofoilbycarpoolingorbuyingavehiclethatgetsbettermileage.Thesupplyismoreelasticinthelongrunbecausenon-OPECproducerswillrespondtothehigherpriceofoilbyproducingmore.C. DoesDrugInterdictionIncreaseorDecreaseDrug-RelatedCrime1. Thefederalgovernmentincreasesthenumberoffederalagentsdevotedtothewarondrugs.Whathappensa. Thesupplyofdrugsdecreases,whichraisesthepriceandleadstoareductioninquantitydemanded.Ifdemandisinelastic,totalexpenditureondrugs(equaltototalrevenue)willincrease.Ifdemandiselastic,totalexpenditurewillfall.b. Thus,becausethedemandfordrugsislikelytobeinelastic,drug-relatedcrimemayrise.2. Whathappensifthegovernmentinsteadpursuedapolicyofdrugeducationa. Thedemandfordrugsdecreases,whichlowerspriceandquantitysupplied.Totalexpendituremustfall(becausebothpriceandquantityfall).b. Thus,drugeducationshouldnotincreasedrug-relatedcrime.

Figure9Figure9(a)DrugInterdiction((a)DrugInterdiction(b)DrugEducationSOLUTIONSTOTEXTPROBLEMS:QuickQuizzes1. Thepriceelasticityofdemandisameasureofhowmuchthequantitydemandedofagoodrespondstoachangeinthepriceofthatgood,computedasthepercentagechangeinquantitydemandeddividedbythepercentagechangeinprice. Whendemandisinelastic(apriceelasticitylessthan1),apriceincreaseraisestotalrevenue,andapricedecreasereducestotalrevenue.Whendemandiselastic(apriceelasticitygreaterthan1),apriceincreasereducestotalrevenue,andapricedecreaseincreasestotalrevenue.Whendemandisunitelastic(apriceelasticityequalto1),achangeinpricedoesnotaffecttotalrevenue.2. Thepriceelasticityofsupplyisameasureofhowmuchthequantitysuppliedofagoodrespondstoachangeinthepriceofthatgood,computedasthepercentagechangeinquantitysupplieddividedbythepercentagechangeinprice. Thepriceelasticityofsupplymightbedifferentinthelongrunthanintheshortrunbecauseovershortperiodsoftime,firmscannoteasilychangethesizesoftheirfactoriestomakemoreorlessofagood.Thus,intheshortrun,thequantitysuppliedisnotveryresponsivetotheprice.However,overlongerperiods,firmscanbuildnewfactories,expandexistingfactories,closeoldfactories,ortheycanenterorexitamarket.So,inthelongrun,thequantitysuppliedcanrespondsubstantiallytoachangeinprice.3. Adroughtthatdestroyshalfofallfarmcropscouldbegoodforfarmers(atleastthoseunaffectedbythedrought)ifthedemandforthecropsisinelastic.Theshifttotheleftofthesupplycurveleadstoapriceincreasethatwillraisetotalrevenueifthepriceelasticityofdemandislessthan1. Noonefarmerwouldhaveanincentivetodestroyhercropsintheabsenceofadroughtbecauseshetakesthemarketpriceasgiven.Onlyifallfarmersdestroyedaportionoftheircropstogether,forexamplethroughagovernmentprogram,wouldthisplanworktomakefarmersbetteroff.QuestionsforReview1. Thepriceelasticityofdemandmeasureshowmuchquantitydemandedrespondstoachangeinprice.Theincomeelasticityofdemandmeasureshowmuchquantitydemandedrespondstochangesinconsumers'income.2. Thedeterminantsofthepriceelasticityofdemandincludetheavailabilityofclosesubstitutes,whetherthegoodisanecessityoraluxury,thebreadthofthedefinitionofthemarket,andthetimehorizon.Goodswithclosesubstituteshavegreaterelasticities,luxurygoodshavegreaterpriceelasticitiesthannecessities,goodsinmorenarrowlydefinedmarketshavegreaterelasticities,andtheelasticityofdemandisgreaterthelongerthetimehorizon.3. Anelasticitygreaterthanonemeansthatdemandiselastic.Whentheelasticityisgreaterthanone,thepercentagechangeinquantitydemandedexceedsthepercentagechangeinprice.Whentheelasticityequalszero,demandisperfectlyinelastic.Thereisnochangeinquantitydemandedwhenthereisachangeinprice.4. Figure1presentsasupply-and-demanddiagram,showingtheequilibriumprice,P,theequilibriumquantity,Q,andthetotalrevenuereceivedbyproducers.Totalrevenueequalstheequilibriumpricetimestheequilibriumquantity,whichistheareaoftherectangleshowninthefigure.Figure15. Ifdemandiselastic,anincreaseinpricereducestotalrevenue.Withelasticdemand,thequantitydemandedfallsbyagreaterpercentagethanthepricerises.Asaresult,totalrevenuemovesintheoppositedirectionastheprice.Thus,ifpricerises,totalrevenuefalls.6. Agoodwithincomeelasticitylessthanzeroiscalledaninferiorgoodbecauseasincomerises,thequantitydemandeddeclines.7. Thepriceelasticityofsupplyiscalculatedasthepercentagechangeinquantitysupplieddividedbythepercentagechangeinprice.Itmeasureshowmuchquantitysuppliedrespondstochangesinprice.8. Ifafixedquantityofagoodisavailableandnomorecanbemade,thepriceelasticityofsupplyiszero.Regardlessofthepercentagechangeinprice,therewillbenochangeinthequantitysupplied.9. Destructionofhalfofthefavabeancropismorelikelytohurtfavabeanfarmersifthedemandforfavabeansisveryelastic.Destructionofhalfofthecropcausesthesupplycurvetoshifttotheleftresultinginahigherpriceoffavabeans.Whendemandisveryelastic,anincreaseinpriceleadstoadecreaseintotalrevenuebecausethedecreaseinquantitydemandedoutweighstheincreaseinprice.QuickCheckMultipleChoice1.a2.b3.d4.c5.a6.cProblemsandApplications1. a. Mysterynovelshavemoreelasticdemandthanrequiredtextbooksbecausemysterynovelshaveclosesubstitutesandarealuxurygood,whilerequiredtextbooksareanecessitywithnoclosesubstitutes.Ifthepriceofmysterynovelsweretorise,readerscouldsubstituteothertypesofnovels,orbuyfewernovelsaltogether.Butifthepriceofrequiredtextbooksweretorise,studentswouldhavelittlechoicebuttopaythehigherprice.Thus,thequantitydemandedofrequiredtextbooksislessresponsivetopricethanthequantitydemandedofmysterynovels.b. Beethovenrecordingshavemoreelasticdemandthanclassicalmusicrecordingsingeneral.Beethovenrecordingsareanarrowermarketthanclassicalmusicrecordings,soitiseasiertofindclosesubstitutesforthem.IfthepriceofBeethovenrecordingsweretorise,peoplecouldsubstituteotherclassicalrecordings,likeMozart.Butifthepriceofallclassicalrecordingsweretorise,substitutionwouldbemoredifficult.(Atransitionfromclassicalmusictorapisunlikely!)Thus,thequantitydemandedofclassicalrecordingsislessresponsivetopricethanthequantitydemandedofBeethovenrecordings.c. Subwayridesduringthenextfiveyearshavemoreelasticdemandthansubwayridesduringthenextsixmonths.Goodshaveamoreelasticdemandoverlongertimehorizons.Ifthefareforasubwayridewastorisetemporarily,consumerscouldnotswitchtootherformsoftransportationwithoutgreatexpenseorgreatinconvenience.Butifthefareforasubwayridewastoremainhighforalongtime,peoplewouldgraduallyswitchtoalternativeformsoftransportation.Asaresult,thequantitydemandedofsubwayridesduringthenextsixmonthswillbelessresponsivetochangesinthepricethanthequantitydemandedofsubwayridesduringthenextfiveyears.d. Rootbeerhasmoreelasticdemandthanwater.Rootbeerisaluxurywithclosesubstitutes,whilewaterisanecessitywithnoclosesubstitutes.Ifthepriceofwaterweretorise,consumershavelittle