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Unformatted text preview: dP s / dQ s = a, dQ s / dP s = 1/ a . Substituting in the elasticity formula, s = dQ s dP s # P s Q s = 1 a # P s Q s = 1 a # aQ s Q s = 1. (c) Show that if a linear inverse supply function has a positive vertical intercept, then it is elastic, i.e., s > 1. Hint: Write the inverse supply function as P s = aQ s + b , where b > 0 is the positive vertical intercept. Substituting in the elasticity formula, we get s = dQ s dP s # P s Q s = 1 a # ( aQ s + b ) Q s = 1 + b aQ s > 1....
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 Summer '07
 Dr.ShomuBanerjee
 Microeconomics, Price Elasticity

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