Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 5 - Part II - Elasticity and its Application - Questions for Review: 7

Answer

The price elasticity of supply is calculated as the percentage change in the quantity supplied of a good divided by the percentage change of the price of that good.

Work Step by Step

Price elasticity of supply measures the effect that a change in the price of a good has on the quantity supplied of that good. In other words, price elasticity of supply measures how suppliers will change the amount of a good they produce in response to a change in the price of that good. For example, if a good is inelastic, like beachfront land, producers will not change their production much in response to a change in price of beachfront land. Since it is impossible to create more beachfront land, producers will not be able to change the amount of beachfront land they produce, even if the price of beachfront land skyrockets.
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