Question

Consider this scenario:

In response to an increase in the product’s price, producers of MP3 players have increased the quantity supplied.

This is an example of ____________________.
a.
elastic supply
b.
elastic demand
c.
inelastic supply
d.
inelastic demand

Answer 1

The correct answer is A.

The supply function represents the quantity of a certain good or service that producers are willing to offer in the market at different price levels. The law of supply states that there is a direct relationship between price and quantity supplied (ceteris paribus, hence, given that the rest remains equal). Therefore, when the price charged increases, the amount that producers are willing to offer increases too.

The elasticity of the supply function is the size of the quantity variation triggered by a price variation. If the amount supplied barely changes the suppply function is inelastic and if it changes appropiately after the price increase, then the function is elastic.