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Elasticity of supply - examples and MCQs for CSEET



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Elasticity of Supply:

Definition: Elasticity of supply measures how responsive the quantity supplied of a good or service is to changes in its price. It helps us understand how producers react to shifts in market conditions.

Types of Elasticity:

  1. Elastic Supply: When the percentage change in quantity supplied is greater than the percentage change in price (∣Es∣>1∣Es∣>1). Producers are highly responsive to price changes.

  • Example: Handcrafted, specialized goods with skilled artisans.

  1. Inelastic Supply: When the percentage change in quantity supplied is less than the percentage change in price (∣Es∣<1∣Es∣<1). Producers are less responsive to price changes.

  • Example: Limited resources or highly regulated industries.

  1. Unitary Elasticity: When the percentage change in quantity supplied is equal to the percentage change in price (∣Es∣=1∣Es∣=1).

Factors Influencing Elasticity:

  1. Time Horizon: Supply tends to be more elastic over a longer time period.

  2. Availability of Inputs: If inputs are easily accessible, supply may be more elastic.

  3. Production Flexibility: The ability to switch production to other goods influences elasticity.

Elasticity Formula: Elasticity of Supply (Es)=% Change in Quantity Supplied% Change in PriceElasticity of Supply (Es)=% Change in Price% Change in Quantity Supplied​

Examples:

  1. Elastic Supply Example:

  • If the price of a specific type of software increases, and programmers can quickly adapt their skills to produce more, it shows elastic supply.

  1. Inelastic Supply Example:

  • In the short term, the supply of rare minerals may be inelastic because it's challenging to increase production rapidly.

Multiple Choice Questions:

1. What does elasticity of supply measure?

  • A. Responsiveness of quantity demanded to price changes.

  • B. Responsiveness of quantity supplied to price changes.

  • C. Consumer preferences for goods.

  • D. Market competition.

Answer: B

2. When is supply considered elastic?

  • A. When ∣Es∣>1∣Es∣>1.

  • B. When ∣Es∣<1∣Es∣<1.

  • C. When ∣Es∣=1∣Es∣=1.

  • D. When ∣Es∣∣Es∣ is undefined.

Answer: A

3. What is the characteristic of inelastic supply?

  • A. ∣Es∣>1∣Es∣>1.

  • B. ∣Es∣<1∣Es∣<1.

  • C. ∣Es∣=1∣Es∣=1.

  • D. No responsiveness to price changes.

Answer: B

4. Which factor influences elasticity by making supply more elastic?

  • A. Availability of substitutes.

  • B. Market competition.

  • C. Time horizon.

  • D. Production flexibility.

Answer: D

5. In the formula for elasticity of supply, what does Es represent?

  • A. Elasticity of supply.

  • B. Change in price.

  • C. Change in quantity supplied.

  • D. Time horizon.

Answer: A

6. When is supply considered inelastic?

  • A. When ∣Es∣>1∣Es∣>1.

  • B. When ∣Es∣<1∣Es∣<1.

  • C. When ∣Es∣=1∣Es∣=1.

  • D. When there are no substitutes.

Answer: B

7. What is unitary elasticity in supply?

  • A. ∣Es∣>1∣Es∣>1.

  • B. ∣Es∣<1∣Es∣<1.

  • C. ∣Es∣=1∣Es∣=1.

  • D. ∣Es∣∣Es∣ is undefined.

Answer: C

8. What factor makes a good a candidate for elastic supply?

  • A. Necessity.

  • B. Availability of substitutes.

  • C. Short time horizon.

  • D. Limited production flexibility.

Answer: B

9. Which type of goods tend to have elastic supply?

  • A. Necessities.

  • B. Inferior goods.

  • C. Luxury goods.

  • D. Substitutable goods.

Answer: C

10. How does time horizon affect elasticity of supply?

  • A. Longer time horizon makes supply more elastic.

  • B. Longer time horizon makes supply more inelastic.

  • C. Time horizon has no impact on elasticity.

  • D. Time horizon makes supply unitary elastic.

Answer: A

11. If the percentage change in quantity supplied is greater than the percentage change in price, what type of supply is it?

  • A. Inelastic supply.

  • B. Elastic supply.

  • C. Unitary elasticity.

  • D. No responsiveness.

Answer: B

12. What does a high availability of inputs do to the elasticity of supply?

  • A. Makes supply more elastic.

  • B. Makes supply more inelastic.

  • C. Has no impact on elasticity.

  • D. Makes supply unitary elastic.

Answer: A

13. What is the characteristic of unitary elasticity in supply?

  • A. ∣Es∣>1∣Es∣>1.

  • B. ∣Es∣<1∣Es∣<1.

  • C. ∣Es∣=1∣Es∣=1.

  • D. ∣Es∣∣Es∣ is undefined.

Answer: C

14. What type of goods are often associated with inelastic supply?

  • A. Necessities.

  • B. Inferior goods.

  • C. Luxury goods.

  • D. Complementary goods.

Answer: A

15. What happens to the elasticity of supply if production flexibility is limited?

  • A. Makes supply more elastic.

  • B. Makes supply more inelastic.

  • C. Has no impact on elasticity.

  • D. Makes supply unitary elastic.

Answer: B

16. How is the elasticity of supply calculated?

  • A. Elasticity of Supply (Es)=Change in Quantity Supplied/Change in Price

  • B. Elasticity of Supply (Es)=% Change in Quantity Supplied/% Change in PriceE

  • C. Elasticity of Supply (Es)=Change in Quantity Demanded/Change in Price

  • D. Elasticity of Supply (Es)=% Change in Quantity Demanded / % Change in Price

Answer: B

17. What is the characteristic of elastic supply?

  • A. Increasing supply as price increases.

  • B. Decreasing supply as price increases.

  • C. No change in supply with price changes.

  • D. No substitutes available.

Answer: A

18. How does the availability of substitutes affect the responsiveness of supply?

  • A. Increases responsiveness.

  • B. Decreases responsiveness.

  • C. Has no impact on responsiveness.

  • D. Makes supply unitary elastic.

Answer: A

19. How does the elasticity of supply differ from the elasticity of demand?

  • A. They are the same concept.

  • B. Elasticity of supply measures responsiveness to quantity demanded.

  • C. Elasticity of demand measures responsiveness to price changes.

  • D. They are unrelated concepts.

Answer: C

20. Which type of elasticity is characterized by a percentage change in quantity supplied equal to the percentage change in price?

  • A. Elastic supply.

  • B. Inelastic supply.

  • C. Unitary elasticity.

  • D. Perfectly elastic supply.

Answer: C

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