Multiple Choice
If a decline in the price of flags \$9 to \$7, caused by a shift in the demand curve, decreases the quantity of flags supplied from 5,500 to 4,500, the:
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4. Elasticity
Price Elasticity of Supply
Multiple Choice
How does the quantity supplied of a good with a large price elasticity of supply react to a change in price?
A
It decreases when the price increases.
B
It increases only slightly when the price rises.
C
It remains almost unchanged regardless of price changes.
D
It increases or decreases significantly in response to price changes.
Verified step by step guidance1
Understand the concept of price elasticity of supply, which measures how much the quantity supplied of a good responds to a change in its price.
Recall that price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price, expressed as \(\text{Elasticity} = \frac{\% \Delta Q_s}{\% \Delta P}\).
Recognize that a large (or high) price elasticity of supply means that the quantity supplied is very responsive to price changes.
Interpret this responsiveness: when the price of the good increases, producers are willing and able to supply significantly more, and when the price decreases, they reduce the quantity supplied significantly.
Conclude that for a good with a large price elasticity of supply, the quantity supplied changes substantially in response to price changes, meaning it increases or decreases significantly as price rises or falls.
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