Price Elasticity of Supply Measures Responsiveness

Steps:

• Identify the concept: Price elasticity of supply (PES) quantifies how quantity supplied changes with price.
• Recall formula: PES = (% change in quantity supplied) / (% change in price).
• Analyze scenario: For price increase from P1 to P2, if supply curve is vertical, quantity supplied remains constant.
• Calculate: % change in quantity = 0, so PES = 0.

Why A is correct:

• PES = 0 indicates perfectly inelastic supply, where quantity supplied does not respond to price changes, per the elasticity definition.

Why the others are wrong:

• B: PES = 1 means unit elastic supply, with equal percentage changes in quantity and price.
• C: PES > 1 indicates elastic supply, where quantity supplied increases more than proportionally to price.

Not enough information for D, as it is unspecified.

Final answer: A