Question

If the price elasticity of supply is less than one, what does it indicate about the seller's sensitivity?

1) The seller is not sensitive to price changes
2) The seller is slightly sensitive to price changes
3) The seller is moderately sensitive to price changes
4) The seller is highly sensitive to price changes

Answer 1

If the price elasticity of supply is less than one, it means that the seller is slightly sensitive to price changes, indicating a less than proportional response in production to price changes.

Step-by-step explanation:

When the price elasticity of supply is less than one, it indicates that the firm's response to price changes is relatively inelastic. This means that if there is a 1 percent increase in the price paid to the firm, it will lead to a less than 1 percent increase in production by the firm. In this case, sellers demonstrate a low responsiveness to price changes. Therefore, the correct answer would be that the seller is not very sensitive to price changes, which corresponds to option 2) The seller is slightly sensitive to price changes.