1.2.5 - Elasticity of supply

Question 1

What is Price Elasticity Of Supply.

Answer 1

How responsive the change in quantity supplied is to a change in price.

Question 2

How do we calculate % change

Answer 2

Question 3

Perfectly Inelastic Supply.

Answer 3

The quantity supplied is completely unresponsive to a change in price (a fixed number of seats in theatre, football stadium).

Value : 0

Question 4

Perfectly elastic supply

Answer 4

The %∆ in quantity supplied will fall to zero with any change %∆ in price.

Value = ∞ (infinity)

Question 5

Inelastic Supply

Answer 5

The %∆ in Quantity supplied is less than the %∆ in Price (e.g agricultural products, water, housing,petrol products/services sold by monopolies.

Value = <1

Question 6

Elastic Supply

Answer 6

The %∆ in Quantity supplied is greater than the %∆ in Price (e.g t-shirt, fidget spinner).

Value : >1

Question 7

Name 4 factors affecting PES ?

Answer 7

1. Time period.
2. Availability of the factors of production.
3. Stock
4. Spare capacity
5. Ability to store goods

Question 8

Time period

Answer 8

The longer it takes to produce a good the more inelastic it would be as, even with a change in price they can still only produce a certain amount of the good.
In the short run, producers may find it harder to respond to an increase in prices as it takes time to produce the product (e.g., avocados). However, in the long run they can change any of their factors of production so as to produce more making the curve more elastic.

Question 9

Availability of the factors of production.

Answer 9

When factors of production are readily available, then suppliers are able to produce more goods/services. This causes the supply of that good/service to become elastic as when price changes to indicate whether or not there should be a decrease or increase of the supply of that good/service then the supply of that good can either stop quickly or because the factors of production of that good is readily available then we can increase the supply of that good. We could say that this depends on the time that it takes to produce that good too thi.

Question 10

Stock

Answer 10

If a business has a stockpile of goods, when the price goes up, they will simply decide to use up some or all of their stockpiles and therefore supply will be more elastic.

Question 11

Spare capacity

Answer 11

if prices increase for a product and there is capacity to produce more in the factories that make those products, then supply will be elastic. If there is no spare capacity to increase production, then supply will be inelastic.

Question 12

Ability to store goods

Answer 12

If products can be easily stored then PES will be higher (elastic) as producers can quickly increase supply (for example, tinned food products). An inability to store products results in lower PES (inelastic)

Question 13

Short-run

Answer 13

a period in which at least one factor of production is fixed. This could be capital such as machinery, factory buildings, etc. As such, the ability to increase production in response to a price increase is limited, making the supply relatively inelastic

Question 14

Long-run

Answer 14

any period of time in which all the factors of production are variable (it is also called the planning stage). Producers are able to vary all of their resources so as to respond to changing market conditions. For example, Lego could build a new factory so as to take advantage of higher prices or greater demand

Question 15

Explain one factor that is likely to determine the price elasticity of new house builds.

Answer 15