IB Economics Higher Level (HL) Practice Exam

When a change in price leads to a proportionately larger change in quantity supplied, this situation is defined as elastic supply. In economics, elasticity of supply measures how responsive the quantity supplied of a good is to a change in its price. If the quantity supplied changes significantly in response to a price change, the supply is considered elastic. In practical terms, elastic supply typically occurs in markets where producers can quickly and easily adjust their production levels – for example, when they have flexibility in the use of resources or when they are able to innovate or change production methods quickly. This responsiveness can be crucial in competitive markets where demand fluctuates. The other concepts like inelastic supply indicate less responsiveness to price changes, while average and variable costs relate to production costs rather than the relationship between price and quantity supplied. Thus, the answer points specifically to the characteristic of supply elasticity in relation to changes in price.