Chapt 3 (PES)

Question 1

Define PES and state its formula

Answer 1

Price elasticity of supply is the responsiveness of QS due to change in price from change in DD

Formula:
PES =
change in QS (effect)——————————
Change in price (cause)

Question 2

Types of PES

Answer 2

1. PES >1 Supply is price elastic
   - Rise/fall in price leads to more than proportionate rise/fall in QS
   - Producers responsive to changes in price.

2.

Question 3

Summary of factors that affect PES

Answer 3

1. Spare capacity
2. Quantity of stock & inventory
3. Time period