4.1.3.4 Price elasticity of supply Quiz: AQA Economics, Unit 1

The 20 questions

1. Price elasticity of supply (PES) measures:

   • the responsiveness of quantity supplied to a change in the good's own price.
   • the responsiveness of price to a change in demand, which shows how far market prices move when consumers want more or less of a product.
   • the responsiveness of supply to a change in the price of a substitute, so that it measures how firms switch between competing products.
   • the responsiveness of quantity demanded to a change in income, so it describes how buyers adjust purchases as earnings change.

2. The price of a good rises by 10% and the quantity supplied rises by 25%. What is the PES?

   • 15.
   • 2.5.
   • 0.4.
   • 0.25.

3. The price of a good rises from £50 to £60 and quantity supplied rises from 1,000 to 1,050 units. What is the PES, and what does it indicate?

   • 4.0, so supply is price elastic, which would be the value if the quantity change were divided by the price change in pounds.
   • 0.25, so supply is price elastic, which would be the wrong reading of a value that is below one in size for supply in the market.
   • 0.25, so supply is price inelastic.
   • 2.5, so supply is price inelastic, which would be the value if the percentage changes were calculated on the wrong base in the market.

4. Which of the following is most likely to make supply price inelastic in the short run?

   • Factors of production that are mobile and easily reallocated, so that firms can move labour and machinery between products within days.
   • Spare capacity and stocks that can be sold quickly, letting firms increase output at short notice when price rises.
   • Firms that can switch quickly between alternative products, using the same factories and equipment to change what they make in the market.
   • Products that take a long time to produce, with fixed capacity.

5. Which of the following would make the supply of a good more price elastic?

   • Spare production capacity and mobile factors of production.
   • Limited availability of raw materials and fixed capacity, so firms cannot increase output in response to a higher price.
   • A long production period with fixed plant, so that firms must wait several years before any extra supply can reach the market.
   • A ban on new firms entering the market, which keeps the number of sellers fixed and prevents any increase in supply in the industry.

6. A perfectly inelastic supply curve is a:

   • line with a PES equal to 1 at every price.
   • horizontal line, with PES equal to infinity.
   • downward sloping line, with PES equal to -1.
   • vertical line, with PES equal to zero.

7. A perfectly elastic supply curve is best described as:

   • a vertical line showing that quantity supplied never changes, so firms supply the same amount whatever price they receive.
   • a horizontal line showing that any quantity can be supplied at a given price.
   • a curve showing constant quantity demanded, so that buyers take the same amount of the product whatever the price in the market.
   • a curve with a slope of -1, which means that quantity supplied falls by one unit for each unit increase in the price charged.

8. Which of the following factors is most likely to make the long-run supply of a product more price elastic than the short-run supply?

   • Firms can build new factories and enter the market over time.
   • Stocks are unavailable for sale, so that firms cannot release any extra goods to the market when the price of their product rises.
   • Price changes are temporary and firms ignore them, which means that output does not respond to the price signals given in the market.
   • Firms have fixed capacity and cannot alter their inputs, so that output responds very little to any change in the price of the product.

9. A farmer's output of a crop can only be increased by planting next season, and the land is fixed. Which statement about the PES in the short run is correct?

   • It is likely to be inelastic, because output cannot be adjusted quickly.
   • It is likely to be negative, because supply falls as price rises.
   • It is likely to be unit elastic, because the price is fixed.
   • It is likely to be perfectly elastic, because the farmer can respond instantly.

10. Using a PES of 2.5, what is the expected percentage change in quantity supplied if price rises by 8%?

    • A rise of 0.32%.
    • A rise of 20%.
    • A rise of 3.2%.
    • A fall of 20%.

11. Which of the following is the best description of why a government might consider the PES of a good when designing a tax?

    • Because PES determines how much consumers earn, so that the government can use the elasticity to decide how much income tax to charge.
    • Because PES measures the cost of labour only, so that the government can use it to set the wage tax paid by employers in the economy.
    • Because PES indicates how much of the tax burden falls on producers and how much output responds.
    • Because PES sets the level of demand for the good, so the tax must be designed to match the elasticity of supply.

12. Which statement best evaluates the importance of PES for a firm making output decisions?

    • PES is irrelevant because firms cannot change output, since their production is fixed by the number of machines they own in the short run.
    • PES helps firms predict how far output can be expanded in response to price changes, though actual responses also depend on constraints.
    • PES is only relevant to government regulators, who use it to set maximum output limits for each firm in the industry.
    • PES tells firms the exact profit they will earn at each price, so they can plan output to maximise profit.

13. A market has a PES of 0.5 and the price rises by 20%. Which change in quantity supplied is most likely?

    • A fall of 10%, which would be the result if supply responded negatively to a price rise in the market, as it does for some goods.
    • A rise of 40%, which would be the result if the elasticity were multiplied by the percentage change in price rather than divided by it.
    • A rise of 10%.
    • A rise of 4%, which would be the result if the price change were multiplied by the elasticity and then reduced by a further twenty percent.

14. Which of the following describes why the PES of a good might be high in one market but low in another?

    • Because the products have the same production process in all markets, so supply elasticity is identical wherever they are made.
    • Because the price of goods is set by governments in all markets, so that producers have no scope to respond to changes in prices.
    • Because PES is always equal to PED for all goods, so that supply responds in the same way as demand in every market.
    • Because differences in spare capacity, stock levels and factor mobility vary between markets.

15. Which of the following is the best evaluation of the statement that all supply is price inelastic in the short run?

    • The statement is true only for services, where firms cannot store output and so cannot respond to price changes in the short run.
    • The statement is always true for every product, since every firm faces fixed capacity and cannot increase output quickly.
    • The statement is false because supply never responds to price in any market, whatever the time period or the type of good involved.
    • The statement is a generalisation that may hold for some goods with fixed capacity, but not for those with spare capacity or stock.

16. The price of a good rises by 15% and the quantity supplied rises by 30%. What is the PES, and what does it indicate about supply?

    • PES = 2, price elastic supply.
    • PES = 0.5, price inelastic supply.
    • PES = 0.5, price elastic supply.
    • PES = 2, price inelastic supply.

17. A PES of 0 for a good means that:

    • quantity supplied falls to zero as price rises, so that firms stop producing whenever the price of the good increases in the market.
    • quantity supplied does not change when price changes, so supply is perfectly inelastic.
    • quantity supplied is infinitely responsive to price, so that any small rise in price leads to an unlimited increase in output by firms.
    • quantity supplied changes by the same percentage as price, which means that supply is unit elastic at every point on the curve.

18. Which of the following would be the most appropriate reason for a firm's supply of a product being price elastic?

    • The product takes many years to produce, so that firms can only increase output after a long delay following any rise in the market price.
    • The product uses a specialised raw material in limited supply, so firms cannot buy extra inputs to raise output.
    • The firm holds large stocks of finished products ready for sale.
    • The firm's factory is fully operating with no spare capacity, so any extra output needs a new plant built over years.

19. A rise in the price of a product leads to a 4% increase in quantity supplied. What is the PES if the price rose by 8%?

    • 2, price elastic.
    • 3.2, price elastic.
    • 0.5, price inelastic.
    • 0.32, price inelastic.

20. Which of the following would cause a change in the PES of a good rather than a shift of its supply curve?

    • A fall in the number of firms supplying the product, which shifts supply to the left as the total quantity offered falls.
    • A change in the availability of spare capacity, which alters how responsive supply is to price.
    • An improvement in the technology used to produce the good, which shifts the whole supply curve to the right at every price in the market.
    • A rise in the price of the factors of production, which raises the cost of supply and shifts the supply curve to the left in the market.

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