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Chapter 5: Q. 13 (page 130)

Describe the general appearance of a demand or a supply curve with zero elasticity.

Short Answer

Expert verified

Regardless of the price, there is no change in the quantity supplied or demanded by a percentage.

Step by step solution

01

Step 1. Definition

The quantity supplied does not respond to price changes when the elasticity is zero, indicating that the good is "fixed" in supply. Such goods sometimes lack a production component or are not manufactured, limiting short-term expansion opportunities.

similarly, when demand elasticity is zero, a change in price would not change quantity demanded. Such goods can be essentials such as life saving medicines.

02

Step 2. Conclusion

In case of zero elasticity, the demand curve would be a straight line parallel to the y-axis instead of a downward sloping curve. This means, irrespective of the price level, the quantity would remain the same.

In case of a supply curve with zero elasticity, the supply curve would not be an upward sloping curve. Instead, it would be a straight line parallel to the y-axis or the vertical axis. This means even if the price increases, the quantity supplied would be the same.

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Most popular questions from this chapter

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 to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.

What is the formula for calculating elasticity?

The supply of paintings by Leonardo Da Vinci, who painted the Mona Lisa and The Last Supper and died in 1519, is highly inelastic. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that demand for these paintings will determine the price.

What is the formula for the income elasticity of demand?

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