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Questions and Answers
The price elasticity of supply measures how much the quantity supplied responds to a change in price.
True
If the price elasticity of supply is greater than 1, supply is considered inelastic.
False
A vertical supply curve represents perfectly inelastic supply, where quantity supplied remains unchanged regardless of price.
True
Supply tends to become less elastic as quantity rises due to capacity limits.
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In the short run, both the supply and demand for oil are inelastic, leading to larger price changes in response to shifts in supply.
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In the long run, supply and demand for oil become more elastic, which leads to smaller price changes in response to supply shifts.
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OPEC was able to keep oil prices high in the long run because the supply and demand for oil remained inelastic.
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Study Notes
Price Elasticity of Supply
- Measures how much the quantity supplied changes due to price changes.
- If the price elasticity of supply is greater than 1, the supply is considered elastic.
- If the price elasticity of supply is less than 1, the supply is considered inelastic.
Perfectly Inelastic Supply
- Represented by a vertical supply curve, meaning the quantity supplied remains constant regardless of price changes.
Short-run Oil Supply and Demand
- Both supply and demand are inelastic, leading to significant price fluctuations in response to supply shifts.
Long-run Oil Supply and Demand
- Supply and demand become more elastic, resulting in smaller price changes to supply shifts.
OPEC and Oil Price Manipulation
- OPEC was able to influence oil prices due to both supply and demand remaining inelastic.
Supply Elasticity and Capacity
- Supply tends to become less elastic as production rises due to capacity constraints.
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