Elasticity Flashcards
Determinants of Price Elasticity of Supply
- Time period
- Ability to store output
- Factor mobility
- Changes in marginal cost of production
- Excess supply
- Availability of infrastructure facilities
How does time period alter PES?
If the price of a commodity rises and the producers have enough time to make adjustments to the level of output, the elasticity of supply will be more elastic. If the time period is short and the supply cannot be expanded after a price increase, the supply is relatively inelastic.
How does ability to store output alter PES?
The goods which can be safely stored have relatively elastic supply over the goods which are perishable and don’t have storage facilities.
How does factor mobility alter PES?
If the factors of production can be moved easily from one use to another, it will affect PES. The higher the mobility of factors, the greater the elasticity of supply of the good and vice versa.
How does a change in the marginal cost of production alter PES?
If marginal cost increases and marginal return declines, the PES will will be less elastic to that extent.
How does excess supply alter PES?
When there is excess capacity and the producer can increase output easily to take advantage of the rising prices, the supply is more elastic. In case the production is already up to the maximum from existing resources, the rising prices will not affect supply in the short period.
How does availability of infrastructure facilities alter PES?
If there are infrastructure facilities readily available to increase output of a particular good in response to a rise in price, then PES will be relatively more elastic.
Relationship between XED and businesses?
When setting prices, firms will look at what alternatives the consumer has; if there are no close substitutes they will be able to increase the price.
What is the value of the YED for a normal good?
The YED is greater than zero.
What is the value of YED for a inferior good?
The YED is less than zero.
What is the value of YED for a necessity good?
Between zero and one.
What is the value of YED for a luxury good?
Greater than one.
Explain YED for a luxury good.
With luxury goods, consumers will buy proportionally more of a particular good compared to a percentage change in their income.
Which sector has the lowest YED?
Primary/Extraction (maybe even negative YED)
Which sector has the middle YED?
Secondary/Manufacturing
