Question

Advise what the Price Elasticity of Supply is. The price elasticity of supply is either zero or a positive number. TRUE or FALSE? Please Explain. A zero price elasticity of supply means that the quantity supplied will not vary as the price varies. TRUE or FALSE? Please Explain. A positive price elasticity of supply means that as the price of an item rises, the quantity supplied rises. TRUE or FALSE? Please Explain.

Answer 1

(i)

Price elasticity of supply = % change in quantity supplied / % change in price

In general If market price increases Firms will supply more and hence quantity supplied either increases or remains constant and because of this price elasticity of supply is either 0 or a positive number.

Thus, this statement is true.

(ii)

A zero price elasticity of supply means then Price elasticity of supply = % change in quantity supplied / % change in price = 0

=> % change in quantity supplied = 0

This means that quantity supplied remains constant and hence does not varies.

Thus, this statement is true.

(iii)

A positive price elasticity of supply means that :

Price elasticity of supply = % change in quantity supplied / % change in price > 0

So, If price increases i.e. % change in price > 0 then in order for % change in quantity supplied / % change in price > 0, % change in quantity supplied should be greater than 0 => % change in quantity supplied > 0

Hence If price increases quantity supplied also increases in order for price elasticity of supply to be positive.

Thus This statement is True