Determinants of Price Elasticity of Supply

The video tutorial explains the concept of price elasticity of supply, focusing on how different factors affect it. It covers four main determinants: spare capacity, time of production process, factor substitutability, and barriers to entry. Each determinant is discussed with examples to illustrate how they influence the elasticity of supply. The tutorial concludes by emphasizing that a combination of these determinants typically affects the price elasticity of supply for a product.

What is the main focus when discussing price elasticity of supply?

• The change in supply due to price changes

• The change in production cost due to supply changes

• The change in demand due to price changes

• The change in consumer preference due to price changes

How is spare capacity defined in the context of price elasticity of supply?

• The maximum output a firm can produce

• The minimum output required to break even

• The difference between maximum and current production levels

• The total production capacity of an industry

Why does spare capacity lead to an elastic supply?

• It enables firms to increase output without additional costs

• It restricts firms from responding to price changes

• It forces firms to maintain constant output levels

• It allows firms to decrease output easily

What determines the speed at which a firm can respond to price changes?

• The level of government regulation

• The amount of capital investment

• The number of employees

• The length of the production process

Why is the supply of wheat considered inelastic in the short term?

• Because it can be harvested quickly

• Due to the long time lag in production

• Because it is a perishable good

• Due to high consumer demand

What is factor substitutability?

• The ability to replace one product with another

• The ease of switching production factors between processes

• The potential to enter new markets

• The capacity to increase production without additional resources

How does factor substitutability affect price elasticity of supply?

• It allows firms to adjust production more easily

• It has no effect on supply elasticity

• It makes supply more inelastic

• It decreases the potential profit margins

What are barriers to entry?

• The legal requirements for market entry

• Obstacles that prevent firms from entering a market

• The cost of producing a new product

• The time required to start a new business

How do barriers to entry affect market supply?

• They prevent new firms from entering, keeping supply constant

• They decrease the production cost for existing firms

• They increase the number of firms in the market

• They encourage competition among existing firms

What is the likely outcome when multiple determinants influence the price elasticity of supply?

• The supply will become perfectly elastic

• A single determinant will dominate

• A combination of determinants will shape the elasticity

• The supply will become perfectly inelastic