1.2.5

Question 1

What is price elasticity of supply?

Answer 1

Measures the relationship between change in quantity supplied and a change in market price

Question 2

What is the formula for calculating the co-efficicent of price elasticity of supply?

Answer 2

PES = Percentage change in quantity supplied / percentage change in price

Question 3

If supply is elastic what does it mean for producers?

Answer 3

Producers can increase their output without a rise in cost or time delay

Question 4

If supply is inelastic what does it mean for firms?

Answer 4

Find it hard to change the production in a given time period

Question 5

Will price elasticity of supply be a positive or negative number and why?

Answer 5

Positive because the relationship between price and quantity supplied is positive

Question 6

If price elasticity of supply is greater than 1?

Answer 6

Supply is elastic

Question 7

If price elasticity of supply is less than 1?

Answer 7

Supply is inelastic

Question 8

If price elasticity of supply is equal to 0?

Answer 8

Supply is perfectly inelastic

Question 9

If price elasticity of supply is equal to infinity?

Answer 9

Supply is perfectly elastic

Question 10

What are 5 factors that affect the elasticity of supply?

Answer 10

-Spare production capacity
-Stocks of finished products and components
-Ease and cost of factor substitution/factor mobility
-Time period and production speed
-Complexity of the production process

Question 11

How does spare production capacity affect elasticity of supply?

Answer 11

Plenty of spare capacity, business can increase output without rising costs and supply will be ELASTIC to change in demand.

Question 12

How does stocks of finished products and components affect elasticity of supply?

Answer 12

Stock of raw materials/finished products are high level, firm can respond to change in demand, ELASTIC supply

Question 13

How does an ease and cost of factor subsitutuion/factor mobility affect elasticity of supply?

Answer 13

Capital labour occupationally mobile, elasticity of supply for a good is higher as resources can be mobilised to supply extra output

Question 14

How does time period and production speed affect elasticity of supply?

Answer 14

Supply more price ELASTIC the longer the firm is allowed to adjust production levels.
Short-run PED is relatively INELASTIC
Long-run PED relatively ELASTIC