If the supply curve of tin is highly inelastic and the demand curve fluctuates cyclically along it, how will the size of the quantity fluctuation compare to the price fluctuations?
Show answer Hide answer
Answer: B. relatively less than
Explanation
Inelastic supply means quantity changes very little when demand shifts occur. Cyclical demand fluctuations travel along the steep, unresponsive supply curve. Price must adjust significantly to clear the market when quantity is rigid. Price elasticity measures the percentage change in quantity divided by price. Inelastic supply curves have a steep slope indicating low responsiveness. Agricultural and mineral commodities often exhibit highly inelastic short-run supply.
Primary commodity markets experience extreme price volatility due to inelastic supply. Farmers face severe income instability from price swings despite stable output. Governments use stabilization policies to mitigate the impacts of inelastic supply. Quantity fluctuations are relatively greater when supply is highly elastic. Equal fluctuations occur only when supply elasticity equals unitary elasticity. Saying any of the above ignores basic microeconomic elasticity principles.
Related questions
Q1. How are domestic and imported finished computers likely to be affected by the application of United States offshore assembly provisions (OAP)?
Show answer Hide answer
Answer: D. Increase the production of computer components in the United States
Lower tariffs on foreign value added incentivize sourcing American-made parts. Domestic component manufacturers benefit directly from increased export demand. Firms seek reduced assembly costs by utilizing qualifying dom...
Q2. If 40% of voters prefer spending Rs1,000 on City Hall artwork, 25% prefer Rs20,000, and 35% prefer Rs22,000, what are the median, average, and modal preferred spending amounts?
Show answer Hide answer
Answer: C. Rs20,000; Rs13,100; Rs1,000
The median preference is the middle voter's choice, which falls at Rs 20,000. The weighted average is (0.40*1000 + 0.25*20000 + 0.35*22000) = 13,100, and the mode is the most frequent preference, Rs 1,000. Arranging vote...
Q3. If the global tin price exceeds the ceiling price established by an international commodity agreement, a buffer stock scheme requires the manager to ____ tin, while an export quota arrangement mandates member nations to _________ their tin shipments?
Show answer Hide answer
Answer: C. sell; increase
Selling stored commodities increases supply and helps lower the market price. Export quotas restrict shipments to reduce total global supply and support prices. Buffer stocks release reserves when market prices exceed es...
Q4. Suppose that the purchasing power parity estimate of the dollar/euro exchange rate is $1.30 per euro, and the current spot rate is $1.3 8 per euro. Comparing these two exchange rates from a long-run viewpoint you would ?
Show answer Hide answer
Answer: B. anticipate the dollar to appreciate against the euro
Purchasing power parity anchors exchange rates over the long run. A spot rate above the PPP level implies the domestic currency is undervalued. Market forces drive the spot exchange rate down toward the equilibrium level...
Q5. Starting from long-run equilibrium, how do an unexpected surge in military spending due to international tensions affect prices and output in the long run according to the aggregate supply-demand model?
Show answer Hide answer
Answer: D. Prices rise; output is unchanged from its initial value
In the long run, output always returns to its natural rate regardless of demand shifts. An unexpected surge in government spending shifts aggregate demand outward and raises the price level. Monetary neutrality and long-...
Q6. Which economic phenomenon is illustrated when a falling price level raises real wages due to fixed nominal wage contracts, prompting firms to cut production?
Show answer Hide answer
Answer: A. sticky-wage theory of the short-run aggregate supply curve
Fixed nominal wage contracts prevent wages from falling immediately with prices. A falling price level unexpectedly raises the real cost of employing labor. Higher real labor costs prompt profit-maximizing firms to reduc...