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:
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Fall '05
 Denslow
 Macroeconomics, Supply And Demand, vertical intercept, Professor Rush

Click to edit the document details