ECO 2013, Fall 2010
Examples
Related to Problem Set 3:
Elasticity
Example 1:
The elasticity of supply is 4/3.
That means that along a given supply curve a
3% increase in price causes a 4% increase in quantity supplied, from the definition of
elasticity.
Example 2:
A reduction in supply increases the price of walnuts from $16 to $20, and
reduces the quantity demanded from 210 tons to 190 tons.
The elasticity of demand is
ELAS = [(210190)/0.5(190+210)]/[(2016)/0.5(16+20)]
ELAS = (10/200)/(4/18) = 0.225.
Notice that this represents inelastic demand.
That implies, strangely enough, that walnuts
do not have close substitutes.
Your instructor has no idea whether that is true.
Example 3:
The almond market has only two customers, Professor Rush and the
Director.
At a price of $10 Professor Rush buys 20 pounds and the Director buys 30
pounds.
At a price of $16 Professor Rush buys 14 pounds and the director buys 20
pounds.
What is the market elasticity of demand over that interval.
Add the demand curves horizontally:
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 Fall '05
 Denslow
 Macroeconomics

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