1.2.5 Elasticity of Supply Flashcards
1
Q
What is Price Elasticity of Supply (PES)
A
Measures the relationship between change in quantity supplied and a change in market price
2
Q
If supply is elastic
A
producers can increase their output without a rise in cost or a time delay
3
Q
If supply is inelastic
A
firms find it hard to change their production in a given time period
4
Q
Formula for PES
A
% Change in Qty supplied / % change in price
5
Q
When PES, is bigger than +1
A
supply is price elastic
6
Q
When PES is smaller than 1
A
Supply is price inelastic
7
Q
When PES is 0
A
Supply is perfectly inelastic
8
Q
When PES = infinity
A
Supply is perfectly elastic
9
Q
Factors that effect price elasticity of supply
A
- Spare production capacity
- Stocks of finished products/components - able to alter supply to a change of supply
- Ease + Cost factor substitution/ production factor mobility
- Time period and production speed
a) short run - relatively inelastic, one factor of
production is changes
b) long run - relatively elastic, all factor of
production are varied - Complexity of production process - complex production is inelastic
