1.2.4/5 supply and elasticity

Question 1

Factors affecting supply

Answer 1

-Production costs- labour, raw materials (oil), energy
-Government policies- taxes, subsidies
-Number of firms
-Technological advances
-Weather-shocks
-Cartels

Question 2

PES

Answer 2

-Responsiveness of quantity supplied to a change in price

Perfectly elastic-PES=infin

Perfectly inelastic-PES=0
-e.g. life changing medications

Elastic-PES>1

Inelastic PES<1

Question 3

Factors influencing PES

Answer 3

Time
-Long run more elastic as firms are able to expand capacity through investments/ certain goods take more time to produce

Storage
-Goods that can be stored are more elastic

Mobility of labour
-More mobile - more elastic

Barriers to entry
-High barriers - more inelastic - difficult to enter market and supply

Question 4

Distinction between short and long run

Answer 4

SR
-Firms less responsive to price changes due to limited flexibilty in adjusting production levels
-more inelastic

LR
-Firms have more options to adjust production capacity
-All factors can be adjusted
-more elastic