2.5 Price Elasticity of Supply

Question 1

price elasticity of supply

Answer 1

price elasticity of supply (PES) is a measure of the responsiveness of the quantity supplied of a good or service to a 1% change in its price, ceteris paribus.

Question 2

price elastic supply

Answer 2

Price elastic supply refers to a situation where a percentage change in the price of a good or service leads to a proportionately larger percentage change in the quantity supplied, in the same direction.
This occurs when the price elasticity of supply (PES) is greater than 1, indicating that producers are responsive to price changes.

Question 3

price inelastic supply

Answer 3

Price inelastic supply refers to a situation where a percentage change in the price of a good or service leads to a proportionately smaller percentage change in the quantity supplied, in the same direction.
This occurs when the price elasticity of supply (PES) is less than 1, indicating that producers are relatively unresponsive to price changes.

Question 4

unitary elastic supply

Answer 4

Unitary elastic supply occurs when a percentage change in price leads to an equal percentage change in quantity supplied, in the same direction.
This means the price elasticity of supply (PES) is exactly 1, and total revenue remains unchanged as price changes.

Question 5

perfectly elastic supply

Answer 5

Perfectly elastic supply occurs when producers are willing to supply any quantity of a good or service at a specific price, but none at any other price.
This is represented by a horizontal supply curve, and the PES is infinite.

Question 6

perfectly inelastic supply

Answer 6

Perfectly inelastic supply occurs when a change in price leads to no change in quantity supplied.
The supply is completely unresponsive to price, represented by a vertical supply curve, and the PES is zero.