3.3 - Elasticities - Price Elasticity of Supply

Question 1

Price elasticity of supply

Answer 1

A measure of the responsiveness of the quantity of a good supplied to changes in its price

Question 2

PES equation

Answer 2

PES= percentage change in quantity of good x supplied/ percentage change in the price of good x

Question 3

PES<1

Answer 3

Supply is price inelastic when PES<1. The percentage change in price is greater than the percentage change of the quantity supplied

Question 4

PES>1

Answer 4

Supply is price elastic. The percentage change in price is smaller than than the percentage change in the quantity supplied.

Question 5

PES=1

Answer 5

Supply is unit elastic. The percentage change in quantity supplied is equal to the percentage change in price.

Question 6

PES=0

Answer 6

Supply is perfectly inelastic. The percentage change in quantity supplied is 0, there is no change in quantity supplied no matter what happens to price

Question 7

PES=∞

Answer 7

Supply is perfectly elastic. The percentage change in quantity supplied is infinite; any change in price leads to an infinitely large response n quantity supplied.

Question 8

Length of time

Answer 8

The amount of time firms have to adjust their inputs and their quantity supplied in response to a price change. In a short time it may be difficult to increase or decrease the quantity supplied thus a highly inelastic supply. As the length of time firms have increases, the responsiveness of quantity supplied to price changes rises.