chapter 12 - pes Flashcards
definition of:
price elasticity of supply
measures the degree of responsiveness of quantity supplied of a product following a change in its price
calculating pes
percentage change in quantity supplied/ percentage change in pricing
price elastic supply
quantity supplied is responsive to changes in price
- pes greater than 1
- plenty of spare capacity
price inelastic supply
quantity supplied not responsive to changes in prices
- pes less than 1
- firms little spare capacity
perfectly price elastic supply
quantity supplied can change without any corresponding change in price, have spare capacity so can raise output at current price level
perfectly price inelastic supply
a change in price has no impact on quantity supplied, no spare capacity to raise output
unitary price elasticity supply
change in price is proportional to change in quantity supplied
determinants of pes
- degree of space capacity
- level of stocks
- number of producers
- ease and costs of substitution
- time period
significance of pes for decision makers
be more responsive to changes in price, helps to be more competitive
how to be more responsive to changes in market price?
- create spare capacity
- train employees
- adopting latest technology
- keep large volumes of sticks