ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Factory owner Susan has calculated that her PES is 3. This number means that,
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if price were to rise by 2% Susan would supply 6% more products.
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If price were to rise by 2% Susan would supply 3% more products.
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the percentage change in price is three times the percentage change in quantity.
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in the PES formula, the top number is smaller than the bottom number.
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Explanation:
Detailed explanation-1: -The price elasticity of supply = % change in quantity supplied / % change in price.
Detailed explanation-2: -While the coefficient for PES is positive in value, it may range from 0, perfectly inelastic, to infinite, perfectly elastic.
Detailed explanation-3: -In general, primary commodities usually have a lower PES than manufactured products. The main reason is the time needed for quantity supplied to respond to price changes. In the case of agriculture, it takes a long time for resources to be shifted in and out of agriculture.
Detailed explanation-4: -The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.
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