Search: Consider two resource markets in which the demand curves slope downward. In market A, the supply curve is horizontal, equilibrium price is $6, and 100 units of the resource are hired. In market B, the supply curve is vertical, equilibrium price is $20, and 30 units of the resource are hired. Which of the following is true?
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A) Total resource earnings are the same in both markets.
To determine which statement is true, we need to analyze the information provided about the two resource markets: market A and market B.
Market A:
- Demand curve: Slopes downward
- Supply curve: Horizontal (meaning it is perfectly elastic)
- Equilibrium price: $6
- Quantity of resource hired: 100 units
Market B:
- Demand curve: Slopes downward
- Supply curve: Vertical (meaning it is perfectly inelastic)
- Equilibrium price: $20
- Quantity of resource hired: 30 units
Now let's evaluate each statement:
Statement 1: Market A is more elastic than Market B.
To determine the elasticity, we can look at the supply curves. Since market A has a horizontal (perfectly elastic) supply curve, it is indeed more elastic than market B, which has a vertical (perfectly inelastic) supply curve. Thus, statement 1 is true.
Statement 2: Market A has a higher price elasticity of demand than market B.
Price elasticity of demand measures how sensitive the quantity demanded is to changes in price. While the information about price elasticity of demand is not provided, we cannot determine if statement 2 is true with the given information. We would need more details or data on the demand curves to make a conclusion.
Statement 3: Market A is in long-run equilibrium, while market B may not be.
To analyze the long-run equilibrium, we would need additional information about factors such as entry and exit of firms, production costs, and market conditions. The given information does not provide enough details to determine if statement 3 is true or not.
Therefore, based on the given information, only statement 1 can be determined as true, while statements 2 and 3 do not have sufficient information to be determined.