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Chapter 5: Q.7 (page 130)

What would the gasoline price elasticity of supply mean to UPS or FedEx?

Short Answer

Expert verified

The percentage change in quantity delivered due to a given percentage change in gasoline price.

Step by step solution

01

Definition

Price elasticity:

The ratio of the percentage change in quantity demanded of a product to the percentage change in price is known as price elasticity of demand. Economists use it to figure out how supply and demand change when the price of a product changes.

02

Explanation

Gasoline price elasticity to supply methods such as UPS or FedEx is the percentage change in quantity supplied as a result of a given percent change in gasoline price. The elasticity of gasoline costs in terms of providing delivery services to UPS or FedEx. Assume that apples have a cross-price elasticity of 0.4 to the price of oranges and that the price of oranges falls by 3%.

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Most popular questions from this chapter

Can you think of an industry (or product) with near-infinite elasticity of supply in the short term? That is, what is an industry that could increase Qs almost without limit in response to an increase in the price?

Would you usually expect elasticity of demand or supply to be higher in the short run or in the long run? Why?

If supply is elastic, will shifts in demand have a larger effect on equilibrium quantity or on price?

What is the formula for the cross-price elasticity of demand?

Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company鈥檚 product at the current price is 1.4, would you advise the company to raise the price, lower the price, or keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.
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