ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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quantity supplied decreases less than proportionately compared to price fall.
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the quantity supplied decreases more than proportionately compared to price fall.
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the quantity supplied decreases less than proportionately compared to price rise.
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the quantity supplied decreases more than proportionately compared to price rise.
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Detailed explanation-1: -Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. The price elasticity of supply (PES) is measured by % change in Q.S divided by % change in price. If the price of a cappuccino increases by 10%, and the supply increases by 20%. We say the PES is 2.0.
Detailed explanation-2: -A price elasticity supply greater than one means supply is relatively elastic, where the quantity supplied changes by a larger percentage than the price change. An example would be a product that’s easy to make and distribute, such as a fidget spinner.
Detailed explanation-3: -If price elasticity is greater than 1, the good is elastic; if less than 1, it is inelastic. If a good’s price elasticity is 0 (no amount of price change produces a change in demand), it is perfectly inelastic.
Detailed explanation-4: -If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price. If the value is less than 1, demand is inelastic.