2.6 Price elasticity of Supply

Question 1

Define PES?

Answer 1

the responsiveness of quantity supplied as a result of a change in price

Question 2

PES formula?

Answer 2

% change in quantity supplied / % change in price

Question 3

what value is PES always?

Answer 3

positive

Question 4

PES value 0 =

Answer 4

perfectly inelastic

Question 5

PES < 1 = ?

Answer 5

price inelastic

Question 6

PES 1 = ?

Answer 6

unitary

Question 7

PES > 1 ?

Answer 7

price elastic

Question 8

PES infinite =?

Answer 8

perfectly elastic

Question 9

What are the four factors effecting PES?

Answer 9

• spare production capacity
• stocks of finished products and components
• ease and cost of factor substitution
• time period and production speed

Question 10

How does spare production capacity effect PES?

Answer 10

• if spare capacity then a business can increase output without a rise in costs and supply will be elastic in response to a change in demand

Question 11

How do stocks of finished products and components effect PES?

Answer 11

• if there are lots of stocks then a firm can easily respond to a change in demand meaning it has elastic supply

Question 12

How does ease and cost of factor substitution effect PES?

Answer 12

• if job is hard to find substitutions or needs a lot of trainign it will be more inelastic

Question 13

How does time period and producition speed effect PES?

Answer 13

supply is more elastic the longer the time that a firm is allowed to adjust its production levels

Question 14

Three examples of goods with inelastic supply?

Answer 14

• nuclear reactors
• grapes
• flood defences

Question 15

Example of two goods with elastic supply?

Answer 15

fidget spinners and taxi service

Question 16

Ways to improve price elasticity of supply?

Answer 16

• create spare capacity
• use latest technology
• keep sufficient stocks develop better storage systems
• prelonging the shelf life