Theory question 105
Elasticity(a) Define elasticity of supply.
(b) When is supply described as (i) elastic; (ii) inelastic?
(c) Outline any two factors that influence elasticity of supply.
Show the model answer
Model answer
(a) The degree of responsiveness of quantity supplied to a change in price: % change in quantity supplied ÷ % change in price.
(b)(i) Elastic: % change in quantity supplied is greater than % change in price (coefficient > 1).
(ii) Inelastic: % change in quantity supplied is less than % change in price (coefficient < 1).
(c) Any two: time period; nature/perishability of the good; availability of spare capacity and stocks; mobility of factors of production; length of the production period; ease of entry of firms.
Explanation
Elastic means coefficient greater than 1; inelastic less than 1.