Are the following statements true, false or uncertain. Briefly explain why. a. A

Question

Are the following statements true, false or uncertain. Briefly explain why.

a. A change in the distribution of income that leaves total income constant will not shift the market demand curve for a product providing

i. Everyone has an income elasticity of demand of zero for the product.

ii. Everyone has the same income elasticity of demand for the product.

iii. Individuals have differing income elasticities for the product, but the average income elasticity for income gainers is equal to the average income elasticity for income losers.

b. In the very short run quantity supplied is absolutely fixed.

c. If the market for hula-hoops is characterized by a very inelastic supply curve and a very elastic demand curve, an inward shift in the supply curve would be reflected primarily in the form of higher output.

d. The market supply curve for any good in short run is the horizontal summation of individuals' short-run supply curves.

Explanation / Answer

Answer:- A change in the distribution of income that leaves total income constant will not shift the market demand curve for a product providing

i. Everyone has an income elasticity of demand of zero for the product.

ii. Everyone has the same income elasticity of demand for the product.

iii. Individuals have differing income elasticities for the product, but the average income elasticity for income gainers is equal to the average income elasticity for income losers.

Correct Answer:- All the three conditions are true. These are the three conditions to change in the distribution of income.

Answer:- In the very short run quantity supplied is absolutely fixed.

Correct Answer:- True, in a very short run , the quantity supplied by the firms remain constant but there can be a variation in the short run.

Answer:- If the market for hula-hoops is characterized by a very inelastic supply curve and a very elastic demand curve, an inward shift in the supply curve would be reflected primarily in the form of higher output.

Correct Answer:- False, as it will result in lower output.

Answer:- The market shortrun supply curve, like the market demand curve, is simply the horizontal summation of all the individual firms' shortrun supply curves.

Correct Answer:- True. The shortrun supply curve of a firm is that part of its marginal cost curve that lies above its average variable cost curve and it is the summation of all individual firm's supply curve in short run.

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