Please help! I have a mid-term test in a couple of minutes...
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If the demand for some good fluctuates, but supply is constant, then which of the following combinations would generally yield the greatest quantity fluctuations?
A) large demand fluctuations and elastic supply
B) small demand fluctuations and unit elastic supply
C) small demand fluctuations and inelastic supply
D) large demand fluctuations and inelastic supply
E) small demand fluctuations and elastic supply
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I don't understand why the correct answer is "a". Please explain to me what the question means and why "a" is the correct answer.
I thought the answer was "d" because I thought if supply was constant, it has to be an inelastic supply, but in this case, it is elastic supply????
The answer is indeed D, not A.
You can draw a constant supply, Elastic, and another one Inelastic, and test that... any shift of demand will make more price change when supply is Inelastic
The question is asking about the combination that would result in the greatest quantity fluctuations given fluctuating demand and constant supply. Let's break down each answer choice and analyze it:
A) Large demand fluctuations and elastic supply: This combination suggests that the demand for the good varies significantly, while the supply is highly responsive to those fluctuations. In this scenario, when demand increases or decreases, the supply can easily adjust to meet the changing demand, leading to greater quantity fluctuations.
B) Small demand fluctuations and unit elastic supply: This combination implies that the demand for the good has minimal variations, and the supply is perfectly responsive to those small fluctuations. This means that the supply changes in the same proportion as the demand, resulting in limited quantity fluctuations.
C) Small demand fluctuations and inelastic supply: This choice suggests that the demand for the good has minimal variations, while the supply is not responsive to those fluctuations. In this case, the quantity supplied remains relatively constant, regardless of changes in demand, leading to limited quantity fluctuations.
D) Large demand fluctuations and inelastic supply: This combination assumes that the demand for the good varies significantly, but the supply is not responsive to those fluctuations. As a result, the quantity supplied remains relatively constant, even when demand changes, leading to limited quantity fluctuations.
E) Small demand fluctuations and elastic supply: This scenario implies that the demand for the good has minimal variations, and the supply is highly responsive to those small fluctuations. In this case, when demand increases or decreases, the supply can easily adjust to meet the changing demand, resulting in limited quantity fluctuations.
Now, let's compare these choices to identify the combination that would generally yield the greatest quantity fluctuations. From the explanations above, it becomes clear that choice A) is correct. Large demand fluctuations combined with elastic supply allows the supply to adjust to the changing demand, resulting in greater quantity fluctuations.
Regarding your confusion about elastic supply, it is not necessary for supply to be constant to be considered inelastic. Inelastic supply means that the quantity supplied does not change significantly in response to changes in price or demand. Elastic supply, on the other hand, indicates that the quantity supplied is highly responsive to changes in price or demand.
Remember, in the given question, supply is assumed to be constant, so the analysis is focused on how demand fluctuations interact with that constant supply level.
I'll be happy to help you understand the question and why the correct answer is "A." Let's break it down step by step.
Firstly, the question is asking about the combination of demand fluctuations and supply elasticity that would generally result in the greatest quantity fluctuations. Quantity fluctuations refer to changes in the amount of the good being produced or consumed.
To understand this, we need to remember the concepts of demand and supply elasticity. Elasticity measures the responsiveness of the quantity demanded or supplied to changes in price or other factors.
Now, let's look at each answer choice:
A) Large demand fluctuations and elastic supply: In this case, demand is fluctuating significantly, meaning there are substantial changes in the quantity demanded. At the same time, supply is elastic, which means the quantity supplied can easily respond to changes in demand. This combination would result in the greatest quantity fluctuations because both demand and supply can vary significantly.
B) Small demand fluctuations and unit elastic supply: Here, demand fluctuations are small, meaning there are only minor changes in the quantity demanded. On the other hand, supply is unit elastic, which means the quantity supplied changes proportionally with changes in demand. In this situation, quantity fluctuations are not as pronounced as in (A).
C) Small demand fluctuations and inelastic supply: In this case, demand fluctuations are small again, but supply is inelastic. When supply is inelastic, it means the quantity supplied cannot easily respond to changes in demand. As a result, the quantity fluctuations are limited.
D) Large demand fluctuations and inelastic supply: Demand fluctuations are large, but supply is inelastic. Since supply doesn't easily adjust to changes in demand, the quantity fluctuations remain limited.
E) Small demand fluctuations and elastic supply: In this scenario, both demand and supply are relatively stable. Although supply is elastic and can respond to changes in demand, the small fluctuations in demand prevent substantial quantity fluctuations.
Based on the above analysis, we can see that option (A) is the correct answer. It represents the combination where both large demand fluctuations and elastic supply lead to the greatest quantity fluctuations.
Remember, supply elasticity is not solely determined by whether supply is constant or not. Other factors, such as the availability of resources, production techniques, and the time period under consideration, can influence the elasticity of supply.
I hope this explanation clarifies why "A" is the correct answer and clears up any confusion you had. Good luck with your mid-term test!