5. PES

Question 1

PES =

Answer 1

(%Δ in Qs)/(% Δ in P)
- range of values is between 0 and ∞

Question 2

1) PES = 0
2) PES = ∞

Answer 2

1) perfectly inelastic – a certain quantity will be sold at any price (football stadium)
2) perfectly elastic – at one P infinite quantity will be supplied (oil; countries importing a commodity, lottery tickets)

Question 3

PES > 1
PES = 1
PES < 1

Answer 3

– S elastic (competitive S)
– stupid (?)
– S inelastic (joint S)

Question 4

Determinants of PES

Answer 4

1) how much costs (TC) rise as output is increased – if TC is decreased, S increases (PES > 1) – if TC is increased, S decreases (PES < 1)
2) mobility/availability of factors of production
3) the existence of unused capacity/storage

Question 5

Market equilibrium

Answer 5

when D meets S (“state of rest”)

Question 6

graph market equilibirum

Answer 6

…

Question 7

When P is above equilibrium P ->
When P is below equilibrium P ->

Answer 7

excess S (leads to fall in P)
excess D (leads to increase in P)