1.2.5 Elasticity of supply

Question 1

Understanding of price elasticity of supply

Answer 1

the responsiveness of supply to a change in price

Question 2

Use formula to calculate price elasticity of supply

Answer 2

PES = %change in quantity supplied / %change in price

Question 3

Interpret numerical values of price elasticity of supply: perfectly and relatively elastic, and perfectly and relatively inelastic

Answer 3

PES = 0 - perfectly inelastic
PES < 1 - relative inelastic
PES = 1 - unit elastic
PES > 1 - relatively elastic
PES = infinity - perfectly elastic

Question 4

Factors that influence price elasticity of supply

Answer 4

complexity of prod..
raw materials
inventory
mobility of factors
excess capacity
storage

Question 5

The distinction between short run and long run in economics and its significance for elasticity of supply

Answer 5

• short run is when at least one factor of production is fixed (land, labour, capital, entrepreneurship)
• in the short run they could sell more products but will be restricted by the factors of production meaning PES will be relatively inelastic
• long run is when all factors of production are variable
• in the long run they can increase production and all factors are variable and therefore supple will be elastic