An artisanal pottery studio produces hand-thrown ceramic vases in a competitive market. Following a surge in market demand, the price of these vases rises by 12%. Due to the time-intensive firing and curing processes, the studio is only able to increase its output by 3%.
Which of the following statements correctly identifies the price elasticity of supply (PES\text{PES}PES) and the relationship between the percentage changes?
Supply is price elastic, with a PES\text{PES}PES of 4.04.04.0, because the percentage change in quantity supplied is greater than the percentage change in price.
Supply is price elastic, with a PES\text{PES}PES of 0.250.250.25, because the percentage change in quantity supplied is less than the percentage change in price.
Supply is price inelastic, with a PES\text{PES}PES of 4.04.04.0, because the percentage change in price is greater than the percentage change in quantity supplied.
Supply is price inelastic, with a PES\text{PES}PES of 0.250.250.25, because the percentage change in price is greater than the percentage change in quantity supplied.
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.