Name: Im Akrunkonghong Prof.

Ky Sereyvath
Group: A
JD18-0635

Homework 3
1. Why does a consumer’s price elasticity of demand for a good depend on the faction
of the consumer’s income spent on that good?
 A consumer's price elasticity of demand for a good depends on the fraction
of the consumer's income spent on that good because a price change alters
the real value of the consumer's purchasing power. This effect grows larger
as the share of the consumer's budget spent on a good increase.

2. Why does the price elasticity of demand for a good decline as we move down along a
straight-line demand curve?
 Price elasticity has a different value at every point along a straight-line
demand curve. The slope of a straight-line demand curve is constant, which
means that 1/slope is also constant. But the price-quantity ratio P/Q
declines as we move down the demand curve. The elasticity of demand thus
declines steadily as we move downward along a straight-line demand curve.

3. Under what conditions will an increase in the price of a reduction in total spending
for that product?
 Cut in price will increase total spending on good if demand is elastic but
reduce it if demand is inelastic. An increase in price will increase total
spending on a good if demand is inelastic but reduce it if demand is elastic.

4. Why do economists pay little attention to the algebraic sign of the elasticity of
demand for a good with respect to its own price, yet pay careful attention to the
algebraic sign of the elasticity of demand for a good with respect to another good’s
price?

 The elasticity of demand for good with respect to its own price, these other
elasticities may be either positive or negative, so it is important to note their
algebraic signs carefully. The income elasticity of demand for inferior goods,
for example, is negative, whereas the income elasticity of demand for normal
goods is positive.

5. Why is supply elasticity higher in the long run than in the short run?

 It is easier to expand production of a product if the inputs used to products,

if inputs are relatively mobile, or if an acceptable substitute for existing
inputs can be developed. And like the price elasticity of demand, the price
elasticity of supply is greater in the long run than in short run.
Name: Im Akrunkonghong Prof. Ky Sereyvath
Group: A
JD18-0635