Price Elasticity of Supply
Definition
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. It shows how sensitive producers are to changes in price.
Analogy
Think about selling lemonade on a hot summer day. If you have plenty of lemons and sugar ready, you can quickly make more lemonade when customers start buying it at higher prices. In this case, supply is elastic. However, if it takes time for you to gather ingredients or produce more lemonade, your supply will be less responsive and considered inelastic.
Related terms
Perfectly Inelastic Supply: When there is no change in quantity supplied regardless of any change in price.
Total Revenue (TR): Total revenue refers to the total amount earned by sellers from selling their products or services.
Factors Affecting Supply Elasticity: These factors include production timeframes, availability of resources, and the ability to switch production to alternative goods.
"Price Elasticity of Supply" appears in:
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Practice Questions (11)
- A company has a monopoly on a certain product and faces no competition. Which type of price elasticity of supply characterizes this situation?
- A company experiences a 20% increase in price, which leads to a 10% increase in quantity supplied. What is the price elasticity of supply coefficient?
- A company faces a price elasticity of supply coefficient of 0.75. How would you classify the elasticity of supply?
- A company experiences a 10% decrease in price, which leads to a 5% decrease in quantity supplied. What is the price elasticity of supply coefficient?
- A product has a price elasticity of supply coefficient of 0.8. If the price increases by 10%, what is the expected percentage change in quantity supplied?
- A product has a price elasticity of supply coefficient of 1.2. If the price decreases by 8%, what is the expected percentage change in quantity supplied?
- Which type of price elasticity of supply describes a situation where the quantity supplied does not change regardless of price changes?
- Which type of price elasticity of supply describes a situation where the quantity supplied is highly responsive to price changes?
- Which type of price elasticity of supply describes a situation where the quantity supplied is exactly proportional to price changes?
- Which type of price elasticity of supply describes a situation where the quantity supplied becomes infinite as the price increases?
- Assume the price elasticity of supply for a product is perfectly inelastic. If the price of the product increases by 10%, what will happen to the quantity supplied?
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