Question 18 of 25intermediate💡 UnderstandShort Answer3 marks

What does the price elasticity of supply mean? How do we measure it?

Correct Answer

The price elasticity of supply measures the responsiveness of quantity supplied to changes in the price of the good. It quantifies how much the quantity supplied changes when the market price changes.

It is measured as the ratio of the percentage change in quantity supplied to the percentage change in price. The formula is given by: eS=Percentage change in quantity suppliedPercentage change in price=ΔQQ×PΔPe_S = \frac{\text{Percentage change in quantity supplied}}{\text{Percentage change in price}} = \frac{\Delta Q}{Q} \times \frac{P}{\Delta P}. Additionally, the Geometric Method can be used to measure elasticity at a specific point on a straight-line supply curve using the ratio of line segments on the quantity axis.

Exercise: EXERCISES | Q: 18 | (Page 15)
For More Understanding

Explanation

The answer is derived directly from the section '4.7 PRICE ELASTICITY OF SUPPLY' in the provided context. The definition focuses on the responsiveness of quantity supplied to price changes. The measurement method involves the percentage change formula, which is simplified in the text. The context also introduces 'The Geometric Method' for measuring elasticity on supply curves, which is included to provide a comprehensive answer.

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