How does the quantity supplied of a good with a large price elasticity of supply react to a change in price?

• A. It decreases when the price increases.
• B. It increases only slightly when the price rises.
• C. It remains almost unchanged regardless of price changes.
• D. It increases or decreases significantly in response to price changes.

Answer: (D)

Verified step by step guidance

1. Understand the concept of price elasticity of supply, which measures how much the quantity supplied of a good responds to a change in its price.
2. Recall that price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price, expressed as \(\text{Elasticity} = \frac{\% \Delta Q_s}{\% \Delta P}\).
3. Recognize that a large (or high) price elasticity of supply means that the quantity supplied is very responsive to price changes.
4. Interpret this responsiveness: when the price of the good increases, producers are willing and able to supply significantly more, and when the price decreases, they reduce the quantity supplied significantly.
5. Conclude that for a good with a large price elasticity of supply, the quantity supplied changes substantially in response to price changes, meaning it increases or decreases significantly as price rises or falls.