What does price elasticity of supply measure? how responsive price is to a change in quantity demanded how responsive supply is to a change in price how responsive price is to a change in quantity supplied how responsive quantity supplied is to a change in price If the price elasticity of supply for steel is 0.97, then the price elasticity of supply for steel is perfectly elastic. relatively elastic. unit elastic. perfectly inelastic. relatively inelastic.
The Correct Answer and Explanation is:
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Correct Answers:
- What does price elasticity of supply measure?
→ How responsive quantity supplied is to a change in price. - If the price elasticity of supply for steel is 0.97, then the price elasticity of supply for steel is
→ Relatively inelastic.
Explanation:
The price elasticity of supply (PES) measures how much the quantity supplied of a good or service responds to a change in its price. Specifically, it is calculated as the percentage change in quantity supplied divided by the percentage change in price. This concept helps economists and businesses understand how flexible producers are in changing the amount they supply when prices fluctuate.
Mathematically:PES=% change in quantity supplied% change in price\text{PES} = \frac{\%\text{ change in quantity supplied}}{\%\text{ change in price}}PES=% change in price% change in quantity supplied
There are several classifications of price elasticity of supply:
- Perfectly inelastic supply (PES = 0): Quantity supplied remains constant regardless of price changes.
- Relatively inelastic supply (PES < 1): Quantity supplied changes by a smaller percentage than the price change.
- Unit elastic supply (PES = 1): Quantity supplied changes by the same percentage as the price.
- Relatively elastic supply (PES > 1): Quantity supplied changes by a larger percentage than the price.
- Perfectly elastic supply (PES = ∞): Even a tiny change in price results in an infinite change in quantity supplied.
In the case where the price elasticity of supply for steel is 0.97, it means that for every 1% increase in price, the quantity of steel supplied increases by only 0.97%. Since this value is less than 1, the supply is considered relatively inelastic. This implies that steel producers are not very responsive to price changes, possibly due to factors such as limited production capacity, time lags in production, or difficulty in obtaining raw materials.
