3.3.4 - Price Elasticity of Supply Flashcards
What is the price elasticity of supply?
Measures the extent to which the supply of a good changes in response to a change in the price of that good.
What is unity? (unit elasticity)
Where PED / YED / XED is 1.
What value shows if a supply curve is elastic?
If the PEs is greater than 1.
How can you tell if the supply curve is inelastic?
If the PEs is less than 1.
Draw a perfectly elastic graph.
Draw a relatively elastic supply graph.
This is actually a graph displaying unity as the gradient = 1.
Imagine this graph, but with a gradient of around 2.
Draw a relatively inelastic supply graph.
Draw a perfectly inelastic graph.
What are the factors determining the price elasticity of supply?
The length of the production period
The availability of spare capacity
The ease of accumulating stocks
The ease of switching between alternative methods of production
The number of firms in the market and the ease of entering the market
Time
Ease of access to specialist equipment
Weather conditions
Why does the length of the production period affect PES?
If goods can be produced in a small period of time, goods will be more elastic as the firm can react to changes in the market faster.
Why does the length of the production period affect PES?
If goods can be produced in a small period of time, goods will be more elastic as the firm can react to changes in the market faster.
Why does the availability of spare capacity affect PES?
In the short run, if a firm possesses spare capacity, labour and raw materials are readily available, production can be quickly increased particularly in the short term.
Why does the ease of accumulating stocks affect PES?
When stocks are held for long periods of time and at low cost, the firm can sell a lot of goods in times of increased demand.
Inversely, if the price of a good falls and there is not much stock held, the firm can divert production away from sales and towards stock accumulation.
Why does the ease of switching between alternative methods of production affect PES?
When firms can quickly alter the way they produce goods, supply tends to be more elastic as there is an increased availability to switch to more efficient methods of production in the short term.
Why does the number of firms in the market and the ease of entering the market affect PES?
The higher the number of firms in a market, along with an increased ease of leaving or entering allows supply to become more elastic.
Why does time affect PES?
Demand is more elastic in the long-term than it is in the short term as consumers and firms are often tied into existing supply levels and demand in the short term.
Why does ease of access to specialist equipment affect market supply?
In markets with more specialist equipment, market supply will be higher as the costs of production will be lower due to technological progress.
Why do weather conditions affect market supply?
In markets reliant on weather for supply, droughts will cause the market supply to fall.
Periods of good weather will cause the market supply to increase.
What are the three types of supply affected by time?
Market period supply
Short-run supply
Long-run supply
What is market supply?
Market supply is the total amount of an item producers are willing and able to sell at different prices, over a given period of time.
What is the difference between perfectly elastic demand and perfectly elastic supply?
For a perfectly elastic demand graph, demand is infinitely elastic at all price on or below the demand curve, though if price rises above the demand curve, the demand immediately falls to zero.
For a perfectly elastic supply graph, supply is perfectly elastic at all prices above the supply curve, but if price falls below the curve, the amount supplied immediately drops to zero as the supply curve is the lowest price that firms are willing to accept.
