2.4 Price elasticity of supply

Question 1

what is the definition of PES

Answer 1

Measure of the responsiveness of Qs to a change in the price of the good / service

Question 2

what is the formula to find PES

Answer 2

% change Q suppplied / % change price

Question 3

PES >1 means what

Answer 3

elastic

Question 4

PES <1 means what

Answer 4

inelastic

Question 5

PES = 0 means what

Answer 5

perfectly inelastic

Question 6

PES = ∞ means what

Answer 6

Perfectly elastic

Question 7

If PES = + 2.3 what does that mean for Qs

Answer 7

A change in price leads to a greater than proportionate change in quantity supplied

(Elastic)

Question 8

If PES = + 0.3 what does this mean for Qs

Answer 8

Change in price leads to a less than proportionate change in quantity supplied

(inelastic)

Question 9

What are two key points about PES ?

Answer 9

1. Always positive
2. Greater than 1 means firms respond quick to change in price - %∆ in Qs is > than %∆ in P

Question 10

What is momentary time period

Time period of production

Answer 10

Time period in which firms cannot increase supply. All FOP are fixed

Question 11

What is a short run time period

Time period of production

Answer 11

Time period in which at least one factor of production is FIXED (usually capital)

Question 12

what is long run time period

Time period of production

Answer 12

Time period where all FOPs are variable but technology remains constant