3.4 Price Elasticity of Supply Flashcards

1
Q

What is price elasticity of supply (PES)?

A

PES measures the relationship between change in quantity supplied and a change in price.

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2
Q

What is the formula for calculating price elasticity of supply?

A

% change in quantity supplied / % change in price

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3
Q

Define elastic supply.

A

Producers can increase their output without a rise in cost or a time delay.

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4
Q

Define inelastic supply.

A

Firms find it hard to change their production in a given time period.

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5
Q

What is the PES type for elastic supply?

A

PES > 1

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6
Q

What happens to quantity supplied in perfectly elastic supply?

A

Quantity supplied is infinite at a given price.

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7
Q

What is the PES type for inelastic supply?

A

0 < PES < 1

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8
Q

What occurs in perfectly inelastic supply?

A

A change in price will lead to no change in quantity supplied.

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9
Q

How does elastic supply respond to a change in price?

A

Can be met without a large rise in price.

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10
Q

What is the characteristic of a perfectly inelastic supply curve?

A

Supply is fixed and cannot respond to a change in market demand.

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11
Q

What are factors affecting price elasticity of supply?

A
  • Spare production capacity
  • Stocks of finished products and components
  • Ease and cost of factor substitution/factor mobility
  • Time period and production speed
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12
Q

When is market supply considered price elastic?

A

When PES > 1 following a change in demand.

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13
Q

What is the difference between short run and long run in terms of production factors?

A

Short run: Level and quality of factors of production is fixed. Long run: Level and quality of factors of production can change.

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14
Q

Why might the PES of salmon be considered low?

A

Factors such as government restrictions, rising fish feed prices, and environmental conditions limit the expansion of supply.

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15
Q

Explain why the supply of manufactured goods tends to be more price elastic than the supply of agricultural goods.

A
  • Time period: Manufacturing can adjust quickly, agriculture has fixed timelines.
  • Substitutability: Factors in manufacturing are easier to substitute.
  • Capacity factors: Manufacturing can expand capacity more readily.
  • Stocks: Manufactured goods can be stored, agricultural goods are often perishable.
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16
Q

Fill in the blank: If supply is ______, a change in price will lead to a proportionally greater change in quantity supplied.

A

elastic

17
Q

Fill in the blank: If supply is ______, a change in price will lead to a proportionally smaller change in quantity supplied.

A

inelastic

18
Q

What does a PES value of infinity indicate?

A

Perfectly elastic supply.

19
Q

What is the effect of having high stocks of finished products on price elasticity of supply?

A

Supply will be elastic, as firms can respond to changes in demand.

20
Q

True or False: Supply is more price elastic in the long run than in the short run.

A

True