Consider two markets. The initial equilibrium for both markets is the same, P =
ID: 1094694 • Letter: C
Question
Consider two markets. The initial equilibrium for both markets is the same, P = $6.50, and Q = 37.0. When the price is $6.75, the quantity supplied of cat food is 63.0 and the quantity supplied of snake oil is 107.00. The demand for both goods is the same (for simplicity of analysis). Use this information to answer the questions below:
*use the midpoint method to calculate elasticity.
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The graph below depicts five demand curves. Please rank each curve in terms of elasticity (where a curve that is more elastic than another curve for any given quantity can be considered more elastic).
Which is the most inelastic? Which is the most elastic?
Explanation / Answer
(Question 1)
(A)
Elasticity of supply, Snake oil = (Change in quantity / Average quantity) / (Change in price / Average price)
= [(107 - 37) / (107 + 37)] / [$(6.75 - 6.5) / $(6.75 + 6.5)]
= (70 / 144) / (0.25 / 13.25)
= 25.76
(B) Supply for Cat food is less elastic than supply of Snake Oil.
[For same % Increase in price, increase in quantity supplied for cat food is less than the increase in quantity supplied of snake oil, therefore Cat food is less elastic than Snake oil]
(Question 2)
The flatter (steeper) a line, the more elastic (inelastic) it is. Therefore, ranking from Most elastic to Least Elastic:
E > A > B > D > C.