ExpertMedium1 markMultiple Choice
AQA GCSE · Question 07 · How markets work
Which of the following is a reason for a firm having price elastic supply?
Which of the following is a reason for a firm having price elastic supply?
Answer options:
A.
A high amount of spare capacity
B.
A low number of substitutes
C.
High consumer incomes
D.
Low stocks of raw materials
How to approach this question
Understand the concept of price elasticity of supply (PES). Elastic supply means producers can respond quickly to a change in price. Consider which of the factors listed would make it easier for a firm to increase its output.
Full Answer
A.A high amount of spare capacity✓ Correct
The correct answer is A. If a firm has a high amount of spare capacity, it can easily increase production in response to a rise in price, making its supply price elastic.
Price elasticity of supply (PES) measures the responsiveness of the quantity supplied to a change in price. Supply is elastic (PES > 1) if producers can easily increase output without a rise in cost or a time delay. Key factors determining PES include the availability of spare production capacity, the level of stocks, and the mobility of factors of production. A firm with plenty of spare capacity can readily increase production when prices rise, making its supply elastic.
Common mistakes
Confusing factors that affect price elasticity of supply with those that affect price elasticity of demand (like substitutes and income).
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