Question 1

Is the elasticity of supply the same as the slope of the supply curve?

Accepted Answer

No, this is a common misconception. Slope measures the ratio of absolute changes (rise/run), whereas elasticity measures the ratio of percentage changes. A straight-line supply curve has a constant slope, but its elasticity changes along the curve unless it is vertical, horizontal, or passes through the origin.

Question 2

If a firm has elastic supply, does that mean it is making a large profit?

Accepted Answer

Not necessarily. Elastic supply (high PES) simply means the firm is very responsive and can increase output quickly if the market price rises. This ability can lead to higher revenue in a rising market, but profit depends on the relationship between total revenue and total costs. A highly responsive firm might also have high production costs, which would limit its profitability.

Question 3

When analysing tax incidence, is it only PES that matters?

Accepted Answer

No, the tax incidence depends on the *relative* elasticities of both supply and demand. The burden falls on the side of the market that is less elastic. For example, if supply is inelastic (PES < 1) but demand is even more inelastic (PED is closer to 0), the consumer will still bear the larger burden. You must always compare PES with PED to determine the final incidence.

Price elasticity of supply

What you need to know

Price elasticity of supply