Table of contents

1. Introduction to Macroeconomics1h 57m
2. Introductory Economic Models59m
3. Supply and Demand3h 43m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
6. Introduction to Taxes1h 25m
7. Externalities1h 3m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. Introducing Economic Concepts49m
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
12. Unemployment and Inflation1h 15m
13. Productivity and Economic Growth1h 17m
14. The Financial System1h 37m
15. Income and Consumption52m
16. Deriving the Aggregate Expenditures Model1h 22m
17. Aggregate Demand and Aggregate Supply Analysis1h 18m
18. The Monetary System1h 1m
19. Monetary Policy1h 32m
20. Fiscal Policy1h 0m
21. Revisiting Inflation, Unemployment, and Policy46m
22. Balance of Payments30m
23. Exchange Rates1h 16m
24. Macroeconomic Schools of Thought40m
25. Dynamic AD/AS Model35m
26. Special Topics11m

4. Elasticity

Price Elasticity of Supply

Macroeconomics

4. Elasticity

Price Elasticity of Supply

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Multiple Choice

If a one percent decrease in the price of a pound of pound cake causes a three percent decrease in the quantity of pound cake supplied:

Demand is inelastic

Demand is elastic

Supply is inelastic

Supply is elastic

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Verified step by step guidance

Understand the concept of elasticity: Elasticity measures how much the quantity supplied or demanded responds to changes in price. If the quantity changes significantly with a small change in price, it is considered elastic.

Identify the given information: A 1% decrease in price leads to a 3% decrease in the quantity supplied. This indicates a relationship between price change and quantity change.

Calculate the price elasticity of supply: Use the formula for price elasticity of supply, which is the percentage change in quantity supplied divided by the percentage change in price. In this case, it would be (-3% / -1%).

Interpret the elasticity value: If the absolute value of the elasticity is greater than 1, supply is considered elastic. This means the quantity supplied is responsive to price changes.

Conclude based on the elasticity value: Since the calculated elasticity is greater than 1, the supply of pound cake is elastic, meaning suppliers are responsive to price changes.