All else held constant, if the price of a resource used to produce product X falls, the price elasticity of supply for product X is likely to:

• A. become perfectly inelastic
• B. remain unchanged, since resource prices do not affect elasticity
• C. decrease, because production becomes less responsive to price changes
• D. increase, because producers can respond more easily to price changes

Answer: (D)

Verified step by step guidance

1. Recall that the price elasticity of supply measures how much the quantity supplied of a good responds to a change in its price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.
2. Understand that the elasticity of supply depends on how easily producers can adjust their production when the price changes. Factors that affect this include production technology, availability and cost of resources, and time period.
3. Consider the effect of a fall in the price of a resource used to produce product X. A lower resource price reduces production costs, making it easier and less costly for producers to increase output when the product's price rises.
4. Since production becomes less costly and more flexible, producers can respond more readily to changes in the product's price, which means the quantity supplied becomes more sensitive to price changes.
5. Therefore, the price elasticity of supply for product X is likely to increase because producers can adjust their supply more easily in response to price changes.