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Elasticity of Supply · Paper 1 — Free Economics SL Practice Questions
1FoundationSAQ-SFactors affecting PES4 marksPaper 1~6 min
A local bakery produces fresh bread daily. The manager is considering increasing the supply of bread in response to a rise in demand. The bakery has limited oven space and cannot purchase additional ovens for at least six months. Flour, a key input, is readily available from local suppliers at any time.
(a)
Define the term price elasticity of supply (PES). [1 mark]
(b)
Explain how the time period affects the PES of the bakery's bread. [2 marks]
(c)
Deduce whether the bakery's revenue is more likely to rise in the short run or the long run following the increase in demand. [1 mark]
Solutions
2MasterySAQ-SPrice elasticity of supply (PES)4 marksPaper 1~6 min
The global market for lithium, a key input for electric vehicle (EV) batteries, has experienced a sustained increase in demand over the past five years. In the short run, lithium supply is relatively inelastic. In the long run, supply becomes more elastic as new mining projects come online.
(a)
State the formula for price elasticity of supply (PES). [1 mark]
(b)
Explain one reason, other than time lags in opening mines, why the short-run supply of lithium is relatively inelastic. [1 mark]
(c)
Using a supply and demand , analyse how a sustained increase in demand for lithium affects equilibrium price and quantity differently in the short run compared to the long run. [2 marks]
Solutions
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