The fundamental determinant of the elasticity of supply is how quickly per-unit costs increase with an increase in production.

Question

Quizplus · Accepted Answer

The faster per-unit costs increase with an increase in production, the less elastic the supply is, and vice versa. This is because if per-unit costs increase quickly, suppliers will need to increase their prices significantly to cover their costs, making it less attractive to produce more goods. On the other hand, if per-unit costs increase slowly, suppliers can afford to produce more goods at a lower price and still make a profit, making them more responsive to changes in demand.

The Fundamental Determinant of the Elasticity of Supply Is How