Understanding Price Elasticity of Supply

The video tutorial explains the concept of price elasticity of supply (PES), which measures how the quantity supplied of a good responds to a change in its price. It covers the formula for calculating PES, distinguishing between elastic and inelastic supply, and special cases like perfect and unit elasticity. The tutorial also discusses factors affecting PES, such as spare capacity and time frame, highlighting how these factors influence a firm's ability to adjust supply in response to price changes.

What does the price elasticity of supply (PES) measure?

• The change in demand due to a change in price

• The change in quantity supplied due to a change in price

• The change in consumer preference due to a change in price

• The change in production cost due to a change in supply

If a good has a PES value greater than one, what does it indicate?

• The supply is inelastic

• The supply is unit elastic

• The supply is elastic

• The supply is perfectly inelastic

What is the PES value of a perfectly inelastic supply?

• Less than one

• Zero

• Equal to one

• Greater than one

How does spare capacity affect the price elasticity of supply?

• It makes supply more elastic

• It has no effect on supply elasticity

• It decreases the quantity supplied

• It makes supply more inelastic

Why is supply more inelastic in the short run?

• Firms cannot quickly adjust their production capacity

• Prices are more stable in the short run

• Demand is more elastic in the short run

• Firms can easily change their production capacity