Final answer:
The price elasticity of supply is determined by the ease of expanding production, the number of substitutes, the amount of taxes, and the difference between the equilibrium price and a price floor.
Step-by-step explanation:
The price elasticity of supply is determined by several factors:
- The ease with which suppliers can expand production of the good: When suppliers can easily increase production of a good, the supply is more elastic. This means that suppliers can quickly and efficiently respond to changes in price, resulting in a larger change in quantity supplied.
- The number of substitutes consumers can find for the good: If there are many substitutes available for a good, suppliers may face more competition. In this case, the price elasticity of supply is higher, as suppliers need to be more responsive to changes in price in order to retain customers.
- The amount of an excise tax imposed on a good: If a higher tax is imposed on a good, suppliers may be less willing or able to increase production. This can result in a less elastic supply.
- The difference between the equilibrium price of a good and the price established by a price floor: Price floors can artificially set prices above the equilibrium level, which may limit the incentive for suppliers to increase production. As a result, the price elasticity of supply may be lower.