Which of the following is the formula for elasticity of supply?
Show answer & explanation
Correct answer: B
Explanation
Answer: It is the % change in the quantity supplied divided by the % change in price.
Explanation:
Elasticity of Supply (Es) measures the degree to which the quantity supplied of a good responds or changes in response to a change in its price.
Its mathematical formula is as follows:
If a slight change in price leads to a significant change in supply, it is termed 'Elastic Supply.' Conversely, if a change in price results in very little or no change in supply, it is termed 'Inelastic Supply.' This is a crucial principle in economics for understanding the behavior of producers.
Additional Points:
Perfectly Elastic (Es = ∞): When an infinite quantity of supply is available at a specific price.
Perfectly Inelastic (Es = 0): When any change in price has absolutely no effect on supply.
Unit Elastic (Es = 1): When the percentage change in price is equal to the percentage change in supply.
Potential Exam Questions and Answers:
Question: If the elasticity of supply is greater than 1, what is it called?
Answer: Elastic Supply.
Question: What is the effect on the elasticity of supply as the time period increases?
Answer: Supply becomes more elastic in the long run.