Question

Show that any linear inverse supply that passes through the origin (i.e., an inverse supply with the functional form p=cQ with

c>0) has a price elasticity of supply equal to one.
a) True
b) False

Answer 1

The price elasticity of supply for a linear inverse supply that passes through the origin is always equal to one.

Step-by-step explanation:

The price elasticity of supply measures the responsiveness of the quantity supplied to a change in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price. For a linear supply curve with the functional form p = CQ, where c is a positive constant, the price elasticity of supply is always equal to one.

In this case, a linear inverse supply passes through the origin, meaning that when quantity supplied is zero, the price is also zero. As the price increases, the quantity supplied increases proportionally. This implies that the percentage change in quantity supplied is always equal to the percentage change in price, resulting in a price elasticity of supply equal to one.