Assume the Elasticity of Of Supply for a Particular Good

question 53

Multiple Choice

Assume the elasticity of of supply for a particular good has been estimated to equal 1.8.In this case,a 10 percent increase in product price would cause the quantity supplied to:

• A)decrease by 1.8 percent.
• B)increase by 1.8 percent.
• C)decrease by 18 percent.
• D)increase by 18 percent.

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Definitions:

External Costs

Costs created by an activity that affect other parties without them being reflected in the market prices, similar to negative externalities.

Production

The process of creating goods and services through the combination of labor, materials, and capital.

Coase Theorem

A principle that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of rights.

Free-Rider Problem

A situation where some individuals consume more than their fair share of a public resource, or shoulder less of the cost of its production.