3.4 Price Elasticity Of Supply

Question 1

Definition of price elasticity of supply

Answer 1

This describes the degree to which supply of a good changes in response to change in price of that good

Question 2

Price elasticity of supply equation

Answer 2

% change in quantity supplied
——————————————
% change in price

Question 3

If PES is inelastic what does it mean?

Answer 3

It will be difficult for suppliers to react swiftly to changes in price

Question 4

If PES is elastic what does this mean?

Answer 4

Supply can react quickly to changes in price

Question 5

What does PES mean if it’s less that 1?

Answer 5

Inelastic

Question 6

What does PES mean if it’s greater than 1?

Answer 6

Elastic

Question 7

What does PES mean if it is 1?

Answer 7

Unitary elasticity

Question 8

What factors affect PES?

Answer 8

• spare production capacity available
  -stocks available to meet demand
• factor substitution possibilities
  • if the factors of product can be changed easily

Question 9

What does it mean if the line comes from the price axis in PES?

Answer 9

Elastic

Question 10

What does it mean if the line comes from the quantity axis in PES?

Answer 10

Inelastic

Question 11

What are the determinants of price elasticity of supply?

Answer 11

• time scale
• spare capacity
• level of stocks
• how substitutable factors are
• barriers to entry

Question 12

What is the anagram for determinants of PES?

Answer 12

TSB LH