A determinant of the price elasticity of supply is the extent to which A. Consum

Question

A determinant of the price elasticity of supply is the extent to which A. Consumers like the quality of the good. B. The demand for the good is relatively elastic. C. Production of the good uses commonly available resources. D. The good has many consumer substitutes. A determinant of the price elasticity of supply is the extent to which A. Consumers like the quality of the good. B. The demand for the good is relatively elastic. C. Production of the good uses commonly available resources. D. The good has many consumer substitutes. A. Consumers like the quality of the good. B. The demand for the good is relatively elastic. C. Production of the good uses commonly available resources. D. The good has many consumer substitutes.

Explanation / Answer

Answer should be (C)

determinants of the price elasticity of supply are:
*the number of producers -- The more producers there are, the easier it should be for the industry to increase output in response to a price increase. Supply will thus be more elastic.
*the existence of spare capacity -- The more capacity there is in the industry, the easier it should be to increase output if price goes up. This makes supply more elastic.
*ease of storing stocks-- if it is easy to stock goods, then if the price rises the firm can sell these stocks and so supply is more elastic. In the case of goods such as fresh products, it may not be easy to store them and so the supply will not be very flexible.
*the time period -- Over time the firm can invest in training and more equipment and more firms can join the industry, so supply should be more flexible, more elastic.
*factor mobility -- i.e. the easier it is for resources to move into the industry, the more elastic supply will be.
*length of the production period -- i.e. the quicker a good is to produce, the easier it will be to respond to a change in price; supply in manufacturing is usually more price elastic than agriculture

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