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Verbally explain the difference between a range in “quantity supplied” and a range in supply. Considering the supply side of the market for lawn-mowing services, what kind of range (increase or decrease, in quantity supplied or supply) would each of the following events cause?

a. There is a rise in the price of gasoline used to run power mowers.

b. There is a rise in the going price for lawn-mowing services.

c. More people decide to offer to mow lawns.

d. A new lawn mower is invented that is cheap and makes it possible to mow lawns at a lower cost.

 
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Braeburn Publishing decides to try to cut its costs of printing books by cutting the price that it offers to companies that supply it with paper.

a. Suppose that the supply is perfectly price inelastic (at least in the short run), because Braeburn buys the entire output of the Morales Paper Company. Because it has no other customers (for now), Morales has no choice but to sell to Braeburn. Illustrate on a graph what will happen to the quantity that Braeburn buys, the price that it pays, and the amount that it will spend on paper when it offers a lower price for paper.

b. Suppose, instead, that the supply of paper is very (but not perfectly) price elastic, because all the companies that sell paper to Braeburn can easily sell their paper elsewhere. Illustrate on a graph what will happen to the quantity that Braeburn will be able to buy, the price that it will pay, and the amount that it will spend on paper, if it follows through with its plan to offer a lower price.

 
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Use the formulas for elasticity to answer the following questions.

a. When Mariba’s income rises by 10 percent, her expenditures on carrots rise 12 percent. What is Mariba’s income elasticity of demand for carrots? Are carrots, for her, a normal or an inferior good?

b. Suppose that the price elasticity of demand for milk is 0.6. If a grocer raises the price of milk by 15 percent, by what percentage will milk sales decrease as a result of the price increase? Will the grocer’s revenue from milk sales go up or down?

c. Suppose that the price elasticity of supply for paper is 1.5. You notice that the quantity of paper supplied decreases by 6 percent as the result of a change in the price of paper. Determine by what percentage the price of paper must have declined.

 
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Calculate the price elasticity of demand for the following cases:

a. When price rises by 5 percent, quantity demanded drops by 10 percent.

b. When price rises by 10 percent, quantity demanded drops by 2 percent.

c. When price rises by 0.05 percent, quantity demanded drops by 99 percent. (Which extreme case is this approaching? Note that the price rise is a fraction of 1 percent, not 5 percent.)

d. When price rises by 99 percent, quantity demanded drops by 0.05 percent. (Which extreme case is this approaching?)

e. When price falls by 10 percent, quantity demanded rises by 2 percent.

 
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