Test: The Theory of Supply - 3 - JAMB MCQ

The determinants of supply elasticity include the price of the product, availability of substitutes, and production technology. These factors affect the responsiveness of quantity supplied to changes in price.

Inelastic supply means that the quantity supplied is not very responsive to changes in price. The percentage change in quantity supplied is smaller than the percentage change in price.

The price elasticity of supply is calculated by dividing the percentage change in price by the percentage change in quantity supplied. This formula helps measure the responsiveness of supply to changes in price.

If the price elasticity of supply is greater than 1, it indicates that supply is elastic. This means that the percentage change in quantity supplied is greater than the percentage change in price, showing a relatively responsive supply to price changes.

When supply is perfectly elastic, it means that even a small change in price leads to an infinite change in quantity supplied. In this case, the elasticity coefficient is greater than 1, indicating an extremely responsive supply.

Crude oil is often considered an example of a product with inelastic supply. This is because it takes significant time and resources to increase oil production, making the quantity supplied less responsive to changes in price.

Cross elasticity of supply measures how the quantity supplied of one good responds to changes in the price of a substitute good. It helps understand the relationship between the supply of different products in the market.

If the cross elasticity of supply for two goods is negative, it indicates that they are complementary goods. Complementary goods are typically consumed together, and a decrease in the price of one leads to an increase in the supply of the other.

The price elasticity of supply is generally higher in the long run. Producers have more time to adjust their production levels, they become more responsive to price changes, and there are fewer production constraints. These factors contribute to a higher elasticity of supply in the long run.

When supply is perfectly inelastic, it means that the quantity supplied does not change regardless of the price. In this case, the elasticity coefficient is zero, indicating no responsiveness of supply to price changes.