Multiple Choice
Supply is said to be ____________ when the quantity supplied is very responsive to changes in price.
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4. Elasticity
Price Elasticity of Supply
Multiple Choice
In microeconomics, the price elasticity of supply measures how much the quantity supplied of a good changes in response to a change in its price.
A
The percentage change in quantity demanded divided by the percentage change in price
B
The percentage change in price divided by the percentage change in income
C
The percentage change in quantity supplied divided by the percentage change in price
D
The change in price divided by the change in quantity supplied
Verified step by step guidance1
Step 1: Understand the concept of price elasticity of supply. It measures the responsiveness of the quantity supplied of a good to a change in its price.
Step 2: Recall the formula for price elasticity of supply, which is the ratio of the percentage change in quantity supplied to the percentage change in price.
Step 3: Express the formula mathematically as: \(\text{Price Elasticity of Supply} = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}\).
Step 4: Note that the percentage change in quantity supplied is calculated as \(\frac{\Delta Q_s}{Q_s} \times 100\) and the percentage change in price is calculated as \(\frac{\Delta P}{P} \times 100\), where \(Q_s\) is quantity supplied and \(P\) is price.
Step 5: Combine these to find the elasticity by dividing the percentage change in quantity supplied by the percentage change in price, which gives a measure of how sensitive supply is to price changes.
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