3. Price Elasticity of Supply

Question 1

Determinants of Price elasticity of demand (PED)

Answer 1

The availability of substitutes
Ø Whether it is a luxury or necessity
Ø Time
Ø Proportion of Income spend

Question 2

If supply is elastic..

Answer 2

If supply is elastic, producers can increase output without a rise in cost or a time delay.

Question 3

If supply inelastic…

Answer 3

If supply is inelastic, producers find it hard to change production in a given time period.

Question 4

Measuring Price Elasticty of Supply

Answer 4

Es=%change in quantity supplied/%change in price
Es= change in quantity supply/quantiy supplied times price/change in price.

Question 5

2 questions

Answer 5

1. The price of wheat rises by 15%, causing quantity supplied to expand by 5%.
   The price of cattle rises from $4 to $5 per kilogram, causing quantity supplied to expand from 1000 to 1100 kilograms.

Question 6

Es=

Answer 6

Es> 1 - Price elastic
Es < 1 - Price inelastic
Es = 1 - unitary elastic
es = 0 - Perfectly inelastic

Question 7

Price elastic

Answer 7

Sellers are sensitive to a price change – the law of supply is relatively strong. and examples are ipads, cars

Question 8

Price inelastic

Answer 8

Sellers are not sensitive to a price change – the law of supply is relatively weak. and eg ins nucelar power and potatoes

Question 9

Unitary elastics

Answer 9

Price and quantity change in exactly the same proportion.

Question 10

Perfect inelastic

Answer 10

A change in price has no effect on quantity supplied. egs rembrandt paintings and rare gemstones