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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

A straight-line supply curve passes through the origin. Which statement about the price elasticity of supply at different points on this curve is correct?

Elasticity equals one at every point of a straight-line supply curve through the origin. Because quantity is directly proportional to price, a given percentage change in price always produces the same percentage change in quantity supplied, so slope changes nothing and supply is unitary elastic throughout.

  1. AElasticity is greater than one at every point
  2. BElasticity is equal to one at every pointCorrect
  3. CElasticity is less than one at every point
  4. DElasticity is greater than one at low prices and less than one at high prices

Explanation

For a linear supply curve through the origin, quantity is proportional to price (Q = kP). Elasticity = (dQ/dP)(P/Q) = k x P/(kP) = 1. A curve cutting the price axis has elasticity above one, and one cutting the quantity axis has elasticity below one, but not one through the origin.

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