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Question 3 3.1Explain what is meant by the term price elasticity of Supply(5 marks) 3.2 Use...

Question 3

3.1Explain what is meant by the term price elasticity of Supply

3.2 Use diagrams and examples explain the following three(3)Different categories of prices elasticity of Demand.

3.2.1. Unit elasticity demand

3.2.2.Relatively inelastic Demand (3marks)

3.2.3.Relatively elastic demand

3.3. list and explain an three(3)determinants of the price elasticity of demand

Solutions

Expert Solution

Answer 3.1 Price elasticity of supply means the responsiveness of quantity Supplied due to the change in price level.

Price elasticity of supply= Percentage change in quantity supplied/ percentage change in price

price elasticity of supply can be elastic, inelastic or unit elastic.

3.2.1 Unit elasticity of demand is when the percentage change in quantity demanded is equal to the percentage change in price.

Answer 3.2.2 Relatively inelastic demand is when the percentage change in quantity demanded is less than percentage change in price.

Answer 3.3.3 Relatively elastic Demand is when percentage change in quantity demanded is more than percentage change in price.

Answer 3.3 Determinant of price elasticity of demand-

1. The availability of close substitutes

The more the close substitutes, the more will be the elasticity of a good as consumers can easily buy another good when price changes.

2. Portion of income spend on the good

The lower the portion of income spend on a good less will be the elasticity of the good.

3. Time period

Goods are less elastic more is the elasticity as there is significant time to adapt to change in price level.

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