Eco 0.2

Question 1

Define Price Elasticity of Supply

Answer 1

Price elasticity of supply (PES) measures the responsiveness of quantity supplied of a good or service to changes in its price.

Question 2

Use the concepts of price change and change in quantity supplied to define elastic supply

Answer 2

A given change in price causes a more than proportionate change in quantity supplied.

Question 3

Use the concepts of price change and change in quantity supplied to define inelastic supply

Answer 3

A given change in price causes a less-than-proportionate change in quantity supplied.

Question 4

Momentary Time Period

Answer 4

In the momentary time period, supply is perfectly inelastic because all factors of production are fixed, meaning firms cannot immediately adjust the quantity supplied in response to a change in price.

Question 5

Short Run

Answer 5

In the short run, at least one factor of production is fixed, meaning firms can only adjust output by changing some inputs, such as labor or raw materials. However, firms cannot expand their physical infrastructure or capital stock within this period.

Question 6

Long Run

Answer 6

In the long run, firms can adjust all factors of production, meaning supply is much more elastic. Firms can invest in new facilities, hire more workers, and expand infrastructure to significantly increase production in response to price changes.

Question 7

Midpoint Method

Answer 7

PES = %^QS/%^P x P1 + P2 / Q1 + Q2

Question 8

Percentage Change Method

Answer 8

PES = %^QS / %^P

%^QS = Change after - change before / change before x 100

%^P = Change after - change before / change before x 100