Elasticities of Supply Flashcards
What is price elasticity of supply?
A measure of how responsive supply is to a change in price.
What is PES?
Price elasticity of supply.
What is the formula for PES?
PES = %change in quantity supplied / %change in price
What is perfectly inelastic supply?
When there is no response in quantity supplied to a change in price.
What is inelastic supply?
When there is a less than proportional response in quantity supplied to a change in price.
What is unitary elastic supply?
When the percentage change in quantity supplied equals the percentage change in price.
What is elastic supply?
When there is a more than proportional response in quantity supplied to a change in price.
What is perfectly elastic supply?
When producers are willing to supply at any amount at a given price, but nothing will be supplied at any other price.
What is the numerical value of perfectly inelastic supply?
Zero (0).
What is the numerical value of inelastic supply?
Between 0 and 1 (0<PES<1).
What is the numerical value of unitary supply?
One (1).
What is the numerical value of elastic supply?
Between one and infinity (1<PES<∞).
What is the numerical value of perfectly elastic supply?
Infinity (∞).
What if the graphical representation of perfectly inelastic supply?
A vertical line.
What if the graphical representation of inelastic supply?
A steep line.
What if the graphical representation of unitary elastic supply?
A diagonal line.
What if the graphical representation of elastic supply?
A shallow line.
What if the graphical representation of perfectly elastic supply?
A horizontal line.
What are the three determinants of elasticity of supply?
1) The nature of the good: e.g. perishable goods, such as fruit or flowers, are inelastic as they cannot be stored for very long.
2) Capacity: in the short-term, it may be difficult for a firm to increase supply in response to a rise in price as their warehouse may already be full or the workforce may already be working at full capacity.
3) Stockpiling: Some goods can be easily stockpiled and then sold when prices rise.
Why is the supply of most goods inelastic in the short run?
Because, in the short run, at least one factor of production is fixed, meaning suppliers cannot adapt quickly enough to a change in price.
Why is the supply of most goods elastic in the long run?
Because, in the long run, all factors of production are variable, so suppliers can adapt to a change in price.
