Price Elasticity of Supply Quiz

What does PES stand for?

What is the formula for calculating PES?

What is the PES if a 1% change in price causes a 2.6% change in supply?

In which scenario is PES = 0?

What is the PES if a 1% change in price causes an infinite percentage change in quantity supplied?

What is the PES when a given percentage change in price causes an equivalent percentage change in quantity supplied?

What are the three key factors determining the PES of a product?

Supply is more elastic when it takes a longer time to produce a product.

Elasticity of supply is always positive.

Supply is more elastic if the product can be stored, making it easier for producers to adjust supply in response to price changes.

Elastic supply benefits consumers because a greater percentage change in quantity supplied can occur without a large increase in price.

It is more beneficial for producers to have inelastic supply.

Governments can encourage the output and consumption of a product by giving a subsidy to producers if supply is elastic.

Advancements in technology tend to make supply more elastic.

Price Elasticity of Supply (PES)

PES measures how responsive the quantity supplied of a good or service is to a change in its price.
It's calculated using the formula: PES = (% change in quantity supplied) / (% change in price).
PES values are always positive, as price and quantity supplied usually move in the same direction.

Calculating PES

Calculate the percentage change in quantity supplied: (Change in quantity supplied / Original quantity supplied) x 100
Calculate the percentage change in price: (Change in price / Original price) x 100
Divide the percentage change in quantity supplied by the percentage change in price to get the PES value.

Interpretation of PES

A PES value greater than 1 indicates elastic supply; a percentage change in price results in a proportionally larger percentage change in quantity supplied.
A PES value less than 1 indicates inelastic supply; a percentage change in price results in a proportionally smaller percentage change in quantity supplied.
A PES of 1 indicates unit elasticity; a percentage change in price results in an equal percentage change in quantity supplied.
A PES of 0 indicates perfectly inelastic supply; any change in price will not affect the quantity supplied.
A PES of infinity indicates perfectly elastic supply; any change in price will cause an infinite change in quantity supplied.

Determinants of PES

Time: Supply becomes more elastic over longer periods as firms have more time to adjust production.
Costs of adjusting supply: If changing supply is inexpensive, supply will be more elastic.
Feasibility of storing output: If a good can be stored, supply is more elastic.

Implications for decision-making

Elastic supply allows producers to respond to changes in demand more readily, leading to higher profits.
Governments may use subsidies to encourage production if supply is elastic.

Test your understanding of Price Elasticity of Supply (PES) with this quiz. Learn how to calculate PES values, interpret them, and explore their implications in economics. Perfect for students studying supply concepts in their economics class.