1. A firm is operating at 90% capacity. When the market price for their product rises and they want to increase QS, ………. A. They will be able to respond because their S will be relatively elastic B. They will not be able to respond very much because their S will be relatively inelastic Practice Multiple Choice Questions on Price Elasticity of Supply

2. The firm has 3 months worth of production held in inventory. The market price has increased. A.The firm will respond by increasing S – simply by bringing the inventory to market B.The firm has a relatively elastic Supply C.Neither A or B D.Both A and B

3. --Firm A makes cookies. They can easily change from one brand of flour to another. --Firm B makes a special diet cookie that must use a only Brand X flour. A.Both firms have elastic S curves B.Neither firm has an elastic S curve C.Firm A- inelastic S curve D.Firm B – elastic S curve E.Firm A – elastic S ; Firm B – inelastic S

4. Which scenario would create an inelastic S curve? A.A firm was able to convince its highly skilled workers to move to the west coast to build a new production facility B.An accounting firm has very little physical capital besides its office furniture. There was a significant increase in demand for accountants in Europe C.Both A and B would result in elastic S curves D.Both A and B would result in inelastic S curves

Determinants of PES Spare capacity Inventory Ease of Factor Substitution Mobility of Capital and Labor

PES and Total Revenue have no relation

Perfectly Inelastic Supply = 0 Define?

Perfectly Elastic Supply = Infinite Define?

Define S, S1, S2

So the rule is……. The steeper the curve, the more inelastic

Why is the upper half inelastic and lower half elastic? Not the same reasons as why Elasticity of D changes -At Q1, P1 – the firm has a lot of “CAPACITY” to respond to a change in price – so as you move from P1 to P2, the Qs increases at a greater rate than the price……. -…so we say, at lower levels of output, the S curve is more elastic

Why is the upper half inelastic and lower half elastic? -At Q4, P4 –…?Explain? the firm Does Not have a lot of “CAPACITY” to respond to a change in price – so as you move from P4 to P5, the P increases at a greater rate than the Qs……. -…so we say, at higher levels of output, the S curve is more inelastic