Elasticity of Supply Practice Questions

Which of the two goods is more likely to be elastically supplied? *

a. Supply of apples over the next growing season

b. Supply of apples over the next decade

Which of the two goods is more likely to be elastically supplied? *

a. Supply of construction workers in Binghamton, NY

b. Supply of construction workers in New York State

Which of the two goods is more likely to be elastically supplied? *

a. Supply of breakfast cereal

b. Supply of food

Which of the two goods is more likely to be elastically supplied? *

a. Supply of gold

b. Supply of computers

If a new process for manufacturing diamonds is created, will the supply curve for diamonds become more elastic or more inelastic? *

a. More elastic

b. More inelastic

If pesticides and fertilizers are banned, will the supply curve for food become more elastic or more inelastic? *

a. More elastic

b. More inelastic

If a larger share of oil output is required to make plastic, will the supply curve for plastic become more elastic or more inelastic? *

In 1993, then President Clinton passed a law raising income taxes. This tax hike was fully expected: He campaigned on it in 1992. What do you expect happened to executive income in the first year of the tax increases? What about in subsequent years? Hint: Top executives have a lot of power over when they get paid for their work: They can ask for bonuses a bit earlier, or they can cash out their stock options a bit earlier. Literally, this isn’t their “labor supply,” it’s more like their “income supply.” *

a. In the first year income will decrease; in the long run it will decrease

b. In the first year income will decrease; in the long run it will remain nearly the same

c. In the first year income will increase; in the long run it will decrease

d. In the first year income will increase; in the long run it will remain nearly the same

Economist Austen Goolsbee estimated that the short-run elasticity of “income supply” for these executives was 1.4, while the long-run elasticity of “income supply” was 0.1. (Note: Goolsbee used a variety of statistical methods to look for these elasticities, and all came to roughly the same result.) If taxes pushed down their take-home income by 10%, how much would this cut the amount of income supplied in the short run? In the long run? *

a. Short run income would decrease 10%; long run income would decrease 1%

b. Short run income would decrease 14%; long run income would decrease 1%

c. Short run income would decrease 10%; long run income would decrease 2%

d. Short run income would decrease 14%; long run income would decrease 2%

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Practice Questions

Elasticity of Supply Practice Questions

Introduction

Supply, Demand, and Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Price Floors

Trade

Externalities

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Labor Markets

Public Goods and the Tragedy of the Commons

Asymmetric Information

Consumer Choice

Bonus Topics

Exam