Give an example that shows price inelasticity of supply. Avoid using examples from the text.
What will be an ideal response?
Examples will vary but should show a thorough understanding of price inelasticity of supply. For example, suppose a study shows the health benefits of eating olives. As a result, the demand for olives increases, thereby increasing the price by 5 percent. However, olive trees take a long time to mature, so suppliers cannot immediately increase supply to meet demand. So the quantity supplied increases by only 1 percent. Dividing 1 by 5 yields 0.2, so this example shows inelasticity of supply because Es < 1.
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A firm producing bottled water reports the following production information:
# of Workers Total Product (gallons of water per hour) 0 0 10 1750 20 2750 30 3550 40 4150 50 4550 60 4750 The bottled water sells in a competitive market at a price of 10 cents per gallon. The firm hires workers in a competitive labor market at a wage of $7 per hour. The firm is currently hiring 20 workers and is considering hiring another 10 . What would you recommend the firm do? Why?
With the assumption that some voluntary exchanges that would make both parties better off are somehow being blocked, we have the basis for a ________ macroeconomic model, such as those constructed by ________ economists
A) non-market-clearing, New Keynesian B) non-market-clearing, New Classical C) market-clearing, New Keynesian D) market-clearing, New Classical