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    Question

    What does the elasticity of substitution depict?

    A Curvedness of the cost function Correct Answer Incorrect Answer
    B Slope of the production function Correct Answer Incorrect Answer
    C Curvedness of the isocost Correct Answer Incorrect Answer
    D Curvedness of the isoquant Correct Answer Incorrect Answer

    Solution

    Elasticity of substitution is the elasticity of the ratio of two inputs to a production (or utility) function with respect to the ratio of their marginal products (or utilities). In a competitive market, it measures the percentage change in the two inputs used in response to a percentage change in their prices. It gives a measure of the curvature of an isoquant, and thus, the substitutability between inputs (or goods), i.e. how easy it is to substitute one input (or good) for the other

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