2.6 Microeconomics Price Elasticity of Supply Flashcards

1
Q

Price elasticity of supply

A

A measure of the responsiveness of a firm to a change in price.

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2
Q

PES=0

A

Perfectly inelastic supply, no matter what the price, the supply of the good does not change.

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3
Q

PES<1

A

The supply of the good is inelastic. This means a change in price leads to a smaller proportionate change in the amount supplied to the market.

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4
Q

PES=1

A

Unitary elasticity of supply.

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5
Q

PES>1

A

Elastic response by the firm to a change in price.

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6
Q

PES=infinity

A

A perfectly elastic response to a change in price. Either the firm supplies at that price or not at all.

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7
Q

Short term

A

At least one factor of production is fixed so supply is more inelastic in the short term.

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8
Q

Long term

A

The response of the firm is more elastic in the long term.

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9
Q

Why is PES more elastic in the long term?

A

Because the firm can change all factors of production.

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10
Q

What factor does a firm change in the short run?

A

Tends to be labour e.g. extra shift workers

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11
Q

How does spare capacity affect the PES?

A

Increases the PES as the firm can respond quickly to change in the market price.

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12
Q

How does spare stock influence the value of the PES?

A

It increases its value as the firm can sell the spare stock if the price rises. PES is more elastic.

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13
Q

How does a flexible labour affect the PES?

A

It means the workforce can adapt and so can make the PES more elastic.

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14
Q

Is the supply of fresh vegetables elastic or inelastic in the short run?

A

Inelastic as the farm would have to plant more vegetables for the following year.

But it depends on whether there is a global supply of vegetables.

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15
Q

Is the supply for a painting by Michael Angelo perfectly elastic or inelastic?

A

Perfectly Inelastic

He is no longer with us so there is no more supply.

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