Thomas Edison State ECO 112 Week 3 Assignment

ECO-112 GS    

Assignment 3

1. Why is the concept of elasticity important? What does it tell economists? Tell whether you would classify automobile production as either elastic or inelastic in the short run and long run. (Keep in mind that we are talking here about supply elasticity, not demand elasticity.) Explain your answer using determinants of elasticity.

2. Use the graph shown below to answer the questions that follow. Your answer for each question should be a letter.

a. The elastic section of the graph is represented by section _ __.

b. The inelastic section of the graph is represented by section __ _.

c. The unit elastic section of the graph is represented by section _ __.

d. The portion of the graph in which a decrease in price would cause total revenue to fall would be _ __.

e. The portion of the graph in which a decrease in price would cause total revenue to rise would be _ __.

f. The portion of the graph in which a decrease in price would not cause a change in total revenue would be _ __.

g. The section of the graph in which total revenue would be at a maximum would be ___.

h. The section of the graph in which elasticity is greater than 1 is _ __.

i. The section of the graph in which elasticity is equal to 1 is _ __.

j. The section of the graph in which elasticity is less than 1 is _ __.

Usethegraphshownbelowtoanswerthequestionsthatfollow.

1. Whatistheeffectofa$300priceceilingonthismarket? Would thisbeabindingpriceceiling?

2. Whatistheeffecta$700priceflooronthismarket?Wouldthis beabindingpricefloor?

3. Whywouldpolicymakerschooseto imposeapriceceiling or pricefloorona market?