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Homework answers / question archive / Suppose the price elasticity of supply for cheese is 0

Suppose the price elasticity of supply for cheese is 0

Economics

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by

a. 0.4% in the short run and 4.6% in the long run.

b. 1.7% in the short run and 0.7% in the long run.

c. 9% in the short run and 21% in the long run.

d. 25% in the short run and 10.7% in the long run.

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  • The correct answer is c. 9% in the short run and 21% in the long run.

Reason:

Elasticity = Percentage Change in quantity supplied/ Percentage change in price

Percentage change in Price = 15%

In short Run:

Elasticity = 0.6

Putting the price change and elasticity value in the formula we have,

  • 0.6 = Percentage change in quantity supplied / 15%
  • Percentage change in quantity supplied = 15% * 0.6
  • Percentage change in quantity supplied = 9%

In Long Run:

Elasticity = 1.4

Putting the price change and elasticity value in the formula we have,

  • 0.6 = Percentage change in quantity supplied / 15%
  • Percentage change in quantity supplied = 15% * 1.4
  • Percentage change in quantity supplied = 21%

Hence the percentage of quantity supplied changes by 9% in the short-run and 21% in long run.

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