2.6: Supply Elasticity Flashcards
1
Q
Price elasticity of supply
A
Measure of the responsiveness of producers to price change
2
Q
PES formula
A
Percentage change in supply /divided/ percentage change in price
3
Q
inelastic PES
A
PES < 1
PES = 0 = perfectly inelastic ( fixed supply)
4
Q
Price elastic supply
A
PES > 1
5
Q
Determinants of PES
A
- mobility of factions of production
- time following a price change
- primary commodities vs manufactured goods
6
Q
Mobility of factors of production
A
- How quickly can land, labour and capital be mobilized towards an output of production following a price change
- primary commodities in the short run have inelastic supply as resources cannot be quickly allocated towards raw materials
7
Q
Time following price change and PES
A
- short run is relatively inelastic and the long run is relatively elastic
- more time to divert resources
