Practise defining, calculating and interpreting PES and explaining how time, spare capacity, stocks, factor mobility and production constraints affect firms' output response.
What is price elasticity of supply?
the change in the quantity supplied when a price changes
the change in the quantity supplied when demand changes
the comparison of the proportionate change in supply to the proportionate change in demand
the comparison of the proportionate change in supply to the proportionate change in price
A firm is producing 100 units at a price of $ 10. The price elasticity of supply is 0.5 and the price is raised to $ 12.
What is the new level of output?
75
110
125
150
The diagram shows the supply curve of a product.
The government imposes a specific indirect tax of $5 on the product.
How will the price elasticity of supply of the product change?
from elastic (>1) to inelastic (<1)
from inelastic (<1) to elastic (>1)
from inelastic (<1) to unitary (=1)
from unitary (=1) to elastic (>1)
A firm establishes that the price elasticity of supply of its product has a value of 0.3. What is likely to be true about the firm?
It has unused productive capacity.
It has a lot of stock of its product.
It uses a high proportion of perishable raw materials.
It uses factors of production that are easily substituted.
Which business is likely to be the slowest to alter its output in response to a sustained increase in demand for its product?
a fast-food restaurant
a household cleaning service
a newspaper printer
an oil exploration company