📚 Topic Summary
Price elasticity of supply (PES) measures the responsiveness of the quantity supplied of a good or service to a change in its price. It essentially tells us how much the quantity supplied will change for every 1% change in price. Understanding PES is crucial for businesses making production decisions and for governments analyzing market behavior. High PES means supply is very responsive to price changes; low PES means it's not!
🧠 Part A: Vocabulary
Match each term with its correct definition:
| Term |
Definition |
| 1. Elastic Supply |
a. A situation where the quantity supplied changes proportionally less than the change in price. |
| 2. Inelastic Supply |
b. A measure of how much the quantity supplied of a good responds to a change in the price of that good. |
| 3. Unit Elastic Supply |
c. A situation where the quantity supplied changes proportionally more than the change in price. |
| 4. Price Elasticity of Supply (PES) |
d. A situation where the percentage change in quantity supplied is equal to the percentage change in price. |
| 5. Perfectly Inelastic Supply |
e. Supply is fixed regardless of price; quantity supplied does not change when price changes. |
📝 Part B: Fill in the Blanks
Complete the following paragraph using the words provided: responsive, zero, greater, producers, less.
Price elasticity of supply measures how __________ quantity supplied is to a change in price. If supply is elastic, the PES value is __________ than 1. This means __________ are able to significantly increase or decrease production based on price changes. If supply is perfectly inelastic, the PES value is __________. This indicates that changes in price have absolutely no impact on quantity supplied. Conversely, if supply is inelastic, the PES value is __________ than 1, indicating that supply is not very responsive to price change.
💡 Part C: Critical Thinking
Explain a real-world scenario where the price elasticity of supply would be very high and another where it would be very low. What factors contribute to these differences?