Economics, 3rd Edition

Questions

1 

What do you think is going to 

happen to the price elasticity of 

supply for oil in the next 50 years? 

Explain.

2 

Assuming the supply of oil did 

plateau in 2005, use the concept 

of price elasticity to explain why 

increasing demand for oil might 

lead to prices rising significantly 

in the years to come.

3 

If oil prices did rise in line with 

Scenario  1 in the article, why 

would countries like Saudi 

Arabia become much wealthier?

4 

In Scenario 2, why is the out-

come of the decline in oil pro-

duction dependent on the ease 

with which the world adapts?

5 

What effect might fuel subsidies 

have on the price elasticity of 

demand for oil?

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100  PART 2  SUPPLY AND DEMAND: HOW MARKETS WORK

5 

Is the price elasticity of supply usually larger in the short 

run or in the long run? Why?

6 

What are the main factors that affect the price elasticity 

of supply? Think of some examples to use to illustrate 

the factors you cover.

7 

A business person reads that the price elasticity of 

demand for the product they sell is 1.25. If the person 

wishes to increase revenue should they increase or 

reduce price? Explain.

8 

In the very short run, the price elasticity of demand for 

tobacco products is very low but over the medium term 

is less so. Explain.

9 

What do we call a good whose income elasticity is less 

than 1?

10 

What factors might affect the price elasticity of supply 

for a commodity such as rubber in the short run and the 

long run? Explain.