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Demand, Supply and Elasticity: Question 6

Syllabus 2.3

Multiple choice AS 1 mark

A stationery company makes three products at the same factory site: recycled-paper notebooks, produced on machinery that is currently running at only 60% of its capacity; fresh-cut flowers for its gift-wrapping service, bought each morning from a local grower who can only pick a fixed quantity per day; and hand-bound leather journals, each of which requires three weeks of work by a single skilled bookbinder.

Which of these products is most likely to have the most price elastic supply in the short run?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Recall what determines price elasticity of supply

Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price. It tends to be higher (more elastic) when producers have spare capacity that lets them raise output quickly, when stocks can be built up in advance, and when the production process is short and does not rely on scarce or slow-to-obtain resources. It tends to be lower (more inelastic) when a producer is already working near full capacity, when the good cannot be stored, or when production takes a long time or depends on specialist skills or scarce inputs.

Step 2: Check option A

The recycled-paper notebooks are made on machinery running at only 60% of its capacity. This spare capacity means that if the price of notebooks rises, the factory can raise output quickly simply by running the existing machinery harder. No new investment or long lead time is needed. This makes supply of the notebooks relatively price elastic.

Step 3: Rule out options B, C and D

  • Option B: the flowers are bought each morning from a grower with a fixed daily picking capacity. Even if the price the company is willing to pay rises, the grower cannot simply pick more flowers than the plants currently allow that day. Supply is constrained regardless of price, making it relatively price inelastic in the short run. Perishability affects how a good’s price behaves once supplied, but it is the fixed picking capacity, not perishability itself, that limits the short-run response of quantity supplied here.
  • Option C: each journal needs three weeks of skilled work from a single bookbinder. This long, labour-intensive production process means the company cannot quickly train new bookbinders or speed up the binding of each journal in response to a price rise, making supply relatively price inelastic.
  • Option D: price elasticity of supply is not the same for every good. It depends on factors such as spare capacity, storability, the time needed to produce more, and how easily resources can move into (or out of) production, all of which clearly differ across the three products described here.

Final answer

Option A. The recycled-paper notebooks have the most price elastic supply, because the factory’s spare capacity lets output be raised quickly in response to a price rise, unlike the flowers (fixed daily picking capacity) or the journals (slow, skilled production).