Supply And Elasticity Of Supply — Important Questions

Expansion (Extension) of supply

Step 1: When supply changes due to a change in the commodity's own price, it is called 'change in quantity supplied.' Step 2: When price rises and supply increases as a result, it is specifically called 'expansion' or 'extension' of supply. Step 3: This is shown as an upward movement along the same supply curve (from point A to point B). Step 4: 'Increase in supply' (Option A) occurs due to factors other than price and shifts the entire supply curve to the right – that is different. Step 5: Options C and D are incorrect in this context. Therefore, Option B is correct.

Improvement in technology of production

Step 1: A rightward shift of the supply curve means that more quantity is supplied at the same price – this is called 'increase in supply.' Step 2: Improvement in technology lowers the cost of production, which increases the profit margin of producers. Step 3: As profits rise, producers are willing to supply more at the same price, causing the supply curve to shift rightward. Step 4: Option A (increase in wages) raises cost of production and reduces supply – leftward shift. Step 5: Option C (increase in excise duty) also raises costs – leftward shift. Option D (expectation of future price rise

Es = % Change in Quantity Supplied / % Change in Price

Step 1: Elasticity of supply measures the responsiveness of quantity supplied to a change in price. Step 2: The correct formula is: Es = (% Change in Quantity Supplied) ÷ (% Change in Price). Step 3: Option A has the numerator and denominator reversed – it gives the inverse of elasticity. Step 4: Options C and D use absolute changes, not percentage changes – these are incorrect. Step 5: Remember: Supply is in the numerator and Price is in the denominator. This formula helps us find the degree of response of supply to a price change. Therefore, Option B is correct.

Perfectly inelastic

Step 1: Price Elasticity of Supply (Es) measures how much supply changes in response to a price change. Step 2: When Es = 0, it means that even if price changes, the quantity supplied does not change at all. Step 3: This is called 'Perfectly Inelastic Supply.' The supply curve is a vertical line parallel to the Y-axis. Step 4: Examples include rare goods like antique paintings or postage stamps whose supply cannot be increased. Step 5: Perfectly elastic (Es = ∞) means infinite response; Unit elastic (Es = 1) means equal % changes. Therefore, Option C is correct.