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Questions and Answers
The price elasticity of supply measures how much the quantity supplied responds to a change in price.
The price elasticity of supply measures how much the quantity supplied responds to a change in price.
True
If the price elasticity of supply is greater than 1, supply is considered inelastic.
If the price elasticity of supply is greater than 1, supply is considered inelastic.
False
A vertical supply curve represents perfectly inelastic supply, where quantity supplied remains unchanged regardless of price.
A vertical supply curve represents perfectly inelastic supply, where quantity supplied remains unchanged regardless of price.
True
Supply tends to become less elastic as quantity rises due to capacity limits.
Supply tends to become less elastic as quantity rises due to capacity limits.
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In the short run, both the supply and demand for oil are inelastic, leading to larger price changes in response to shifts in supply.
In the short run, both the supply and demand for oil are inelastic, leading to larger price changes in response to shifts in supply.
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In the long run, supply and demand for oil become more elastic, which leads to smaller price changes in response to supply shifts.
In the long run, supply and demand for oil become more elastic, which leads to smaller price changes in response to supply shifts.
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OPEC was able to keep oil prices high in the long run because the supply and demand for oil remained inelastic.
OPEC was able to keep oil prices high in the long run because the supply and demand for oil remained inelastic.
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Study Notes
Price Elasticity of Supply
- Measures how much the quantity supplied changes due to price changes.
- If the price elasticity of supply is greater than 1, the supply is considered elastic.
- If the price elasticity of supply is less than 1, the supply is considered inelastic.
Perfectly Inelastic Supply
- Represented by a vertical supply curve, meaning the quantity supplied remains constant regardless of price changes.
Short-run Oil Supply and Demand
- Both supply and demand are inelastic, leading to significant price fluctuations in response to supply shifts.
Long-run Oil Supply and Demand
- Supply and demand become more elastic, resulting in smaller price changes to supply shifts.
OPEC and Oil Price Manipulation
- OPEC was able to influence oil prices due to both supply and demand remaining inelastic.
Supply Elasticity and Capacity
- Supply tends to become less elastic as production rises due to capacity constraints.
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