The price elasticity of supply measures how responsive A) Producers are to changes in the price of other goods. B) Producers are to changes in income. C) Producers are to changes in the price of a product. D) Producers are to changes in the cost of producing a product.
The Correct Answer and Explanation is:
Correct Answer:
C) Producers are to changes in the price of a product.
Explanation:
Price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good to a change in its own price. In economic terms, it captures how much the quantity supplied changes when the price of that good increases or decreases, holding all other factors constant.
Mathematically, the price elasticity of supply is calculated as:Price Elasticity of Supply (PES)=% change in quantity supplied% change in price\text{Price Elasticity of Supply (PES)} = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}}Price Elasticity of Supply (PES)=% change in price% change in quantity supplied
If the PES is greater than 1, supply is considered elastic, meaning producers can increase output relatively easily when prices rise. If PES is less than 1, supply is inelastic, and producers cannot respond easily to price changes—possibly due to limitations like fixed resources, time lags, or production constraints. A PES equal to 1 is considered unit elastic, where the percentage change in quantity supplied equals the percentage change in price.
The key factor influencing PES is time. In the short run, supply tends to be less elastic because firms may not be able to quickly change their production levels. Over the long run, supply generally becomes more elastic as firms can adjust all of their inputs.
Other factors that influence PES include the availability of raw materials, spare production capacity, the ease of switching between different products, and the flexibility of the production process.
It is important to note that PES specifically relates to changes in the price of the product itself, not the prices of other goods (option A), changes in consumer income (option B), or production costs (option D). While these factors may influence supply decisions indirectly, PES is narrowly defined as the relationship between a product’s price and the quantity of that same product supplied.
