1.2.5 Elasticity Of Supply ✅

Question 1

What is the law of supply?

Answer 1

That when there is an increase in price charged there will be an increase in supply. (Ceteris paribus).

Question 2

What is PES?

Answer 2

Price elasticity of supply, the responsiveness in quantity supplied to a change in price.

Question 3

How do you measure PES?

Answer 3

Price 1/ QD1 X change in QD/ change in price

Question 4

What do you expect from a PES?

Answer 4

It to be positive as we are talking about supply.

Question 5

What is a perfectly and relatively inelastic PES?

Answer 5

Perfectly inelastic = 0
Relatively inelastic = 0 to 1

Question 6

What is a perfectly and relatively elastic PES?

Answer 6

Relatively elastic = 1 to infinity
Perfectly elastic = infinity

Question 7

Name the determinants of PES?

Answer 7

• mobility of factors of production ( if producers can quickly switch resources from different products then it means they are more price elastic to supply).
• availability of raw materials (if raw materials are scarce then PES is inelastic but if they are abundant then the PES is elastic).
• ability to store goods (if goods can be easily stored they are elastic as supply can be increased to the market quickly.
• time period
• unemployment rate
• availability of substitutes.

Question 8

What does short run and long-run relate to?

Answer 8

Factors of production.

Question 9

What is the distinction between short run and long run? How is the significant for Supply elasticity?

Answer 9

Short run is a period of time when one factor of production is fixed. Long run is when all production factors are variable (aka planning stage) and can be adjusted to suit the market conditions.

As something can be inelastic SR but elastic LR.