Factors Affecting Price Elasticity of Supply

Steps:

• Recall price elasticity of supply (PES) measures how much quantity supplied changes with price, influenced by production flexibility.
• Identify key supply factors: spare capacity, time horizon, factor mobility.
• Evaluate options: A and D relate to demand necessities/income; C to substitute competition in demand.
• Confirm B directly impacts supply responsiveness via unused resources.

Why B is correct:

• Spare capacity allows firms to ramp up production easily without proportional cost rises, increasing PES per the definition of elastic supply.

Why the others are wrong:

• A: Degree of necessity affects price elasticity of demand, not supply, as it influences consumer responsiveness.
• C: Price of substitutes impacts demand elasticity by shifting buyer choices, irrelevant to suppliers.
• D: Proportion of income spent affects demand elasticity, determining if goods are luxuries (elastic) or necessities (inelastic).

Final answer: B