Answer to Question #320591 in Macroeconomics for Rose

Question

What do you understand price elasticity of supply to be? Indicate if the

coefficient is usually positive or negative and why. (3)

3.4 With reference to price elasticity of demand, answer the following

questions:

3.4.1 Indicate what the two (2) main determinants are that price elasticity

of demand depends on. (2)

3.4.2 With the aid of a diagram (draw the diagram), illustrate and explain

what a linear demand curve is, where exactly the top of the curve is

and where the bottom of the curve is, and how elasticity values

(coefficients) vary on the curve from being infinitely (perfectly)

elastic to unit elastic and finally to completely (perfectly) inelastic.

Answer 1

The price elasticity of supply is the measure of the responsiveness in quantity supplied to a change in price for a specific good.

The coefficient is always positive because the Law of Supply says that quantity supplied increases with an increase in price. This means: If the supply is elastic, producers can increase output without a rise in cost or a time delay.

3.4.1

a) Availability of substitutes

b) if the good is a luxury or a necessity

3.4.2

A linear demand curve is a line representing the relationship between the demand for a product or service and its price.