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Price Elasticity of Supply
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Which of the following statements accurately describe the implications of price elasticity of supply in market dynamics? Select all that apply.

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Choose the Best Answer

A

If the price elasticity of supply is greater than one, producers will significantly increase production in response to price increases.

B

A price inelastic supply indicates that suppliers can quickly adjust their output to meet price changes.

C

Understanding price elasticity of supply is crucial for assessing how external factors might influence producer behavior.

D

When supply is unit elastic, a price change will lead to an equivalent percentage change in quantity supplied.

E

Price floors will always lead to a surplus regardless of the price elasticity of supply.

Understanding the Answer

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Answer

Price elasticity of supply measures how much the quantity supplied of a good changes when its price changes. If supply is elastic, producers can quickly increase production when prices rise, leading to a more responsive market. For example, if a farmer can easily grow more tomatoes when prices increase, the supply is elastic. On the other hand, if supply is inelastic, producers cannot change their production quickly, which can lead to shortages or higher prices. Understanding price elasticity helps businesses and policymakers predict how changes in price will affect the overall market.

Detailed Explanation

Other options are incorrect because This statement suggests that a high elasticity means a big change in production; This option implies that inelastic supply means quick adjustments.

Key Concepts

Price Elasticity of Supply
Market Dynamics
Producer Behavior
Topic

Price Elasticity of Supply

Difficulty

hard level question

Cognitive Level

understand

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