A Level Economics AQA Practice Exam

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In economic terms, what does elasticity of supply measure?

Responsive consumers to price changes
Responsive producers to price changes
Consumer behavior regarding substitutes
Government influence on markets

The correct answer is: Responsive producers to price changes

Elasticity of supply specifically measures how responsive producers are to changes in the price of a good or service. When the price of a product increases, suppliers may choose to produce more of that product, while a decrease in price may lead suppliers to produce less. This responsiveness is quantified using the concept of elasticity, which looks at the percentage change in quantity supplied relative to the percentage change in price. A higher elasticity indicates that producers can easily adjust their supply in response to price changes, often due to factors such as availability of resources, production capabilities, and market conditions. Conversely, lower elasticity suggests that changes in price have minimal impact on the quantity supplied. Understanding this concept is crucial for analyzing how markets operate and how producers react to market signals.