Multiple Choice
All else held constant, if the price of a resource used to produce product X falls, the price elasticity of supply for product X is likely to:
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4. Elasticity
Price Elasticity of Supply
Multiple Choice
If the supply curve for a product is horizontal, then the elasticity of supply is:
A
infinite
B
less than one
C
one
D
zero
Verified step by step guidance1
Understand that the elasticity of supply measures how much the quantity supplied changes in response to a change in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.
Recall that a horizontal supply curve means the price remains constant regardless of the quantity supplied. This implies that suppliers are willing to supply any quantity at that fixed price.
Since the price does not change when quantity changes, the percentage change in price is zero, while the percentage change in quantity supplied can be very large.
Mathematically, elasticity of supply is given by the formula: \(\text{Elasticity of Supply} = \frac{\% \text{ change in quantity supplied}}{\% \text{ change in price}}\).
Because the denominator (percentage change in price) approaches zero for a horizontal supply curve, the elasticity of supply tends to infinity, indicating perfectly elastic supply.
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