Supply & Demand | True or False

Are the following statements true or false? Explain your answers.

a. The elasticity of demand is the same as the slope of the demand curve.

b. The cross-price elasticity will always be positive.

c. The supply of apartments is more inelastic in the short run than the long run.

a.      The elasticity of demand is the same as the slope of the demand curve.

False. Elasticity of demand is the percentage change in quantity demanded divided by the percentage change in the price of the product. In contrast, the slope of the demand curve is the change in quantity demanded (in units) divided by the change in price (typically in dollars).

The difference is that elasticity uses percentage changes while the slope is based on changes in the number of units and number of dollars.

b.      The cross-price elasticity will always be positive.

False. The cross-price elasticity measures the percentage change in the quantity demanded of one good due to a 1% change in the price of another good. This elasticity will be positive for substitutes (an increase in the price of hot dogs is likely to cause an increase in the quantity demanded of hamburgers) and negative for complements (an increase in the price of hot dogs is likely to cause a decrease in the quantity demanded of hot dog buns).

c.       The supply of apartments is more inelastic in the short run than the long run.

True. In the short run it is difficult to change the supply of apartments in response to a change in price. Increasing the supply requires constructing new apartment buildings, which can take a year or more. Therefore, the elasticity of supply is more inelastic in the short run than in the long run.