Questions and Answers
What does the price elasticity of supply measure?
The responsiveness of quantity supplied due to a change in price, holding other factors constant.
What is the formula for calculating the price elasticity of supply?
%ΔQS / %ΔP
What is the defining characteristic of a perfectly elastic supply?
Quantity supplied is infinitely responsive to price changes.
What is the difference between an inelastic supply and an elastic supply?
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What is the unit of measurement for the price elasticity of supply?
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What happens to the quantity supplied when the price elasticity of supply is unit elastic?
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A supply curve is upward sloping, but the quantity supplied does not change when the price changes. What is the price elasticity of supply in this scenario?
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If the price elasticity of supply is 2, what will happen to the quantity supplied if the price increases by 10%?
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What is the main difference between an inelastic supply and an elastic supply?
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What happens to the quantity supplied when the price elasticity of supply is perfectly elastic?
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Study Notes
Price Elasticity of Supply
- Measures the responsiveness of quantity supplied due to a change in price, with other factors held constant.
- Formula: PES = %∆Qs / %∆P
Degrees of Price Elasticity of Supply
- Perfectly Inelastic Supply (PES = 0): Quantity supplied does not change with price changes.
- Inelastic Supply (PES < 1): Quantity supplied changes less than proportionately to price changes.
- Unit Elastic Supply (PES = 1): Quantity supplied changes proportionately to price changes.
- Elastic Supply (PES > 1): Quantity supplied changes more than proportionately to price changes.
- Perfectly Elastic Supply (PES = ∞): Quantity supplied is infinitely responsive to price changes.
Price Elasticity of Supply
- Measures the responsiveness of quantity supplied due to a change in price, with other factors held constant.
- Formula: PES = %∆Qs / %∆P
Degrees of Price Elasticity of Supply
- Perfectly Inelastic Supply (PES = 0): Quantity supplied does not change with price changes.
- Inelastic Supply (PES < 1): Quantity supplied changes less than proportionately to price changes.
- Unit Elastic Supply (PES = 1): Quantity supplied changes proportionately to price changes.
- Elastic Supply (PES > 1): Quantity supplied changes more than proportionately to price changes.
- Perfectly Elastic Supply (PES = ∞): Quantity supplied is infinitely responsive to price changes.
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