Supply Elasticity

​

Price Elasticity of Supply

Multiple Choice

What does PES stand for?

• Price Elasticity of Stock

• Price Elasticity of Sales

• Price Elasticity of Supply

• Price Elasticity of Service

Definition of Price Elasticity of Supply

Price Elasticity of Supply (PES) measures how
much the quantity supplied of a good responds
to a change in its price.

PES = (% Change in Quantity Supplied) / (%
Change in Price)

1. Production Time

Goods that can be produced quickly have more
elastic supply, as producers can adjust output
faster in response to price changes.

Example: Elastic - Baked goods (can be
produced quickly); Inelastic - Oil extraction
(long production time)

2. Availability of Spare Capacity

If a company has spare capacity, it can increase
production without significant delays, making
supply more elastic.

Example: A factory operating at 50% capacity
can quickly increase output if prices rise,
showing elastic supply.

3. Availability of Stock

Goods that are stored in inventory can be
supplied more readily, resulting in more elastic
supply.

Example: Retail goods like canned food (elastic
due to storage) vs. fresh produce like
strawberries (inelastic due to perishability).

4. Mobility of Factors of Production

If resources like labor and machinery can easily
shift to produce a different good, supply tends
to be more elastic.

Example: A garment factory can quickly switch
between making shirts and pants, while an oil
refinery has less flexibility.

5. Time Period for Adjustment

Supply tends to be more elastic in the long term,
as firms have more time to adjust production.

Example: Housing supply is inelastic in the
short term due to construction time, but more
elastic in the long term as new buildings are
developed.

6. Level of Technological Innovation

Advances in technology make it easier to
increase production, resulting in more elastic
supply.

Example: Improved farming techniques allow
for rapid increase in crop supply, showing
higher elasticity.

Summary and Review

• Recap of the six main factors affecting price

elasticity of supply.

• Join Quizzes lesson to solve questions give

your feed back

Multiple Choice

Products like pencils, books, and other school stationaries are easy to store in a warehouse. If a firm producing such goods and has a good warehousing facilities and can supply more when prices are rising, then supply will be

• Inelastic

• Unitary elasticity

• Elastic

• None of the above

Multiple Choice

The supply of agricultural goods is

• relatively inelastic while the supply of manufactured goods is relatively elastic.

• relatively elastic while the supply of manufactured goods is relatively inelastic.

Multiple Choice

If there are more firms producing more luxury items then supply of luxury items will increase. In such case, if there is any increase in price, the firms can supply more to make use of this rise in price.

• True

• False

Multiple Choice

Factory owner Susan has calculated that her PES is 3. This number means that,

• if price were to rise by 2% Susan would supply 6% more products.

• If price were to rise by 2% Susan would supply 3% more products.

• the percentage change in price is three times the percentage change in quantity.

• in the PES formula, the top number is smaller than the bottom number.

Multiple Choice

When the price is more and the firms are able to produce more to take the benefit of this increase in price, then supply is said to be....

• Elastic

• Inelastic

• Unitary elasticity

• None of the above

Multiple Choice

If the supply curve of a product is vertical, PES is equal to

• 0.

• 1.

• -1.

• infinity.

Multiple Choice

Firms producing perishable items with less warehousing facility will be able to respond to increase in price and and they can supply more to meet the increase in demand. Is the statement true or false

• False

• True

Multiple Choice

The mining boom in created a shortage of labour in the hospitality industry in WA. This made the supply of restaurant meals in WA

• perfectly inelastic.

• more elastic.

• perfectly elastic.

• less elastic.

Multiple Choice

If the firm have more spare capacity, then it will be possible for the firm to increase supply. This means supply is

• Elastic

• Inelastic

• Unitary elasticity

Multiple Choice

Price elasticity of supply is the responsiveness of

• demand to a change in price.

• price to a change in supply.

• quantity supplied to a change in price.

• price to a change in supply.

Multiple Choice

If the price of a product doubled and in response the quantity supplied also doubled then the PES is equal to

• 1

• -1

• 2

• o

Multiple Choice

In agriculture farming, it takes time to increase the supply of fruits and vegetables as the harvesting needs time. Hence supply will be less responsive to increase in price,nad supply will be ...

• Inelastic

• Elastic

• Unitary Elasticity

• None of the above

Multiple Choice

Supply is more price elastic if more time is available as the firms can adjust the supply and increase the supply when price are increasing.

• True

• False

Multiple Choice

If storage of a good is cheap and readily available, supply is likely to be

• relatively elastic.

• relatively inelastic.

• perfectly inelastic.

• perfectly elastic.