scenario 5 - 2 milk has an inelastic demand, and steak has an elastic demand. suppose that a mysterious…

scenario 5 - 2 milk has an inelastic demand, and steak has an elastic demand. suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. 2. refer to scenario 5 - 2. the change in equilibrium price will be a. greater in the milk market than in the steak market. b. greater in the steak market than in the milk market. c. the same in the milk and steak markets. d. unknown without more information. 3. if a 39 percent change in price results in a 35 percent change in quantity supplied, then the price elasticity of supply is about a. 1.11, and supply is elastic. b. 1.11, and supply is inelastic. c. 0.90, and supply is inelastic. d. 0.90, and supply is elastic.

scenario 5 - 2 milk has an inelastic demand, and steak has an elastic demand. suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. 2. refer to scenario 5 - 2. the change in equilibrium price will be a. greater in the milk market than in the steak market. b. greater in the steak market than in the milk market. c. the same in the milk and steak markets. d. unknown without more information. 3. if a 39 percent change in price results in a 35 percent change in quantity supplied, then the price elasticity of supply is about a. 1.11, and supply is elastic. b. 1.11, and supply is inelastic. c. 0.90, and supply is inelastic. d. 0.90, and supply is elastic.

Answer

Explanation:

Step1: Recall elasticity - price change relationship

When demand is inelastic and supply decreases, a larger portion of the supply - decrease burden is borne by consumers in terms of price increase. When demand is elastic and supply decreases, consumers are more responsive to price changes, so the price increase is smaller. Milk has inelastic demand and steak has elastic demand. A 50 - percent decrease in the population of dairy cows and beef cattle (decrease in supply) will cause a greater price change in the market with inelastic demand (milk market).

Step2: Calculate price elasticity of supply formula

The formula for price elasticity of supply ($E_s$) is $E_s=\frac{%\text{ change in quantity supplied}}{%\text{ change in price}}$. Given that $%\text{ change in price} = 39%$ and $%\text{ change in quantity supplied}=35%$, then $E_s=\frac{35}{39}\approx0.90$. If $E_s < 1$, supply is inelastic.

Answer:

  1. a. greater in the milk market than in the steak market.
  2. c. 0.90, and supply is inelastic.