1.2.
5 Price Elasticity of Supply
1 If the price elasticity of supply (PES) for a particular product has a value of +2.0, what does this
mean?
A A 1% increase in price leads to a 0.5% increase in the quantity supplied
B A 1% increase in price leads to a 2% fall in the quantity supplied
C A 1% increase in price leads to a 2% increase in the quantity supplied
D A 2% increase in price leads to a 1% increase in the quantity supplied
2 Which of the following products is MOST likely to have a highly inelastic price elasticity of
supply?
A Green vegetables
B Gold
C Fresh flowers
D Mass-produced sliced bread
3 Suppose that market supply of a product is perfectly price elastic. Which of the following might
happen, if the demand curve shifts to the left?
A Both price and quantity will fall
B Quantity will fall but the market price will remain the same
C Price will fall but the quantity supplied will remain the same
D Price will rise and the quantity supplied will also rise
4 Government environmental information suggests that up to 18% of domestic heat loss is
through windows, and that heat is lost through single-glazing windows twice as fast as through
double-glazing windows. Their advice is to replace single-glazing with double-glazing, in order
to save up to £110 on energy bills per year, for the average semi-detached house. The PES for
double-glazed windows is estimated to be +1.5. If there is a 2% increase in the market price due
to a rise in demand, then
A quantity supplied will rise by 1.5%
B quantity supplied will rise by 2%
C quantity supplied will rise by 3%
D quantity supplied will rise by 5%
5 In the long run, price elasticity of supply is higher than in the short run. Which of the following
factors explain this difference?
(x) The stock of building and machinery can change
(y) New firms can enter the market if demand increases
(z) Firms can change the scale of their operations
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A (x) and (y)
B (y) and (z)
C (x) and (z)
D (x), (y) and (z)
6 A firm producing stone flowerpots estimates that the price elasticity of supply is +0.8. Its current
level of output is 20,000 units per month which are sold for £25 each. Calculate the change in
their total revenue, if the market price increases by 10% and all units are sold.
A A rise of £94,000
B A rise of £6,000
C A rise of £50,000
D A fall of £6,000
7 The price elasticity of supply of cocoa beans over a given time period is found to be +0.4. The
most likely explanation for this PES value is that
A cocoa bean farmers have plenty of spare capacity.
B farmers are able to store cocoa beans at low cost.
C there has been a poor harvest of cocoa beans.
D cocoa beans are a necessity to consumers.
8 What would be the most effective way for an ice cream producer to increase the price elasticity
of supply of her products?
A A decrease in the period of time that stocks can be kept
B An increase in the level of employment in the area
C An increase in the cost of capital goods employed by the firm
D A decrease in the time that it takes to produce the products
9 When demand for a good increases, its equilibrium price stays the same. What can be
concluded about its price elasticity of supply?
A Price elasticity of supply is perfectly elastic
B Price elasticity of supply is elastic
C Price elasticity of supply is inelastic
D Price elasticity of supply is perfectly inelastic
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10 Which of these four diagrams represents a market in which price elasticity of supply is 0?
A P B
P
Q Q
P C D
P
Q Q
A Diagram A
B Diagram B
C Diagram C
D Diagram D
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