HW01-EC11-Solution

Elasticity o

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Unformatted text preview: ducer equal price? Suppose the producer produced at marginal cost > price, then he would be losing money for each additional product he produces. Now suppose the producer produced at marginal cost < price, then he is willing to produce more of his product. o Why does marginal value of consumer equal price? Suppose the consumer bought the good at marginal value < price, then he would be paying for more than he is benefiting for each additional product he bought. Now suppose the consumer bought the good at marginal value > price, then he is willing to consume more of the good. Elasticity o Explain why gas is inelastic on the short term and elastic on the long term. On the short run the quantity of gas consumers consume does not change much as price fluctuates because people cannot immediately change their driving behavior (e.g. commute to school and work, the fuel efficiency of their vehicles). However, on the long run, consumers can adopt more fuel efficient cars, car pool, and p...
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