Factors affecting PES

Question 1

Factors 1

Answer 1

1. Time period
2. Mobility of FOP
3. Availability of Spare/unused capacity
4. Ability to store stocks
5. Rate at which costs increase

Question 2

Time period

Answer 2

• Market Period
• Short Run Period
• Long Run Period
• longer time allowed for adjustment, greater price elasticity of supply

Question 3

Market Period (Time Period)

Answer 3

• All FOP are fixed in supply
• producers cannot respond to a change in demand or price
• PES = 0, perfectly price inelastic, vertical line
• at whatever price, producer willing and able to offer same amt of gd
• e.g. fisherman’s supply of fresh fish in the morning cannot be increased even if price were to increase, not enuf time to catch more fish, product is perishable, cannot withhold it frm makret when price falls

Question 4

Short Run Period

Answer 4

• at least 1 fixed FOP
• production can increase in short run by increasing variable factor
• e.g. fisherman cannot increase capital (boat– fixed factor), hire more labour to work on fixed capital, Qss rises, SS curve slopes frm left to right frm SM to SSR
• supply is relatively inelastic, production constrained by fixed capital
• less than proportionate rise in Qss

Question 5

Long Run Period

Answer 5

• All FOP available
• sufficiently long time for producers to make desired resource adjustments
• supply more elastic, responsive to price change as possible to vary all FOP
• gentler gradient

Question 6

Mobility of FOP

Answer 6

• ease at which fop can move from one use to another

Question 7

Price elastic (Mobility of FOP)

Answer 7

• high factor mobility
• quick access to factors to ramp up production
• FOP are easy to replace
• e.g. supply of textiles, low skilled labour can be replaced with capital

Question 8

Price inelastic (Mobility of FOP)

Answer 8

• low factor mobility
• difficult to replace inputs
• e.g. specialised machines used in supply of crude oil

Question 9

Ability to store stocks

Answer 9

• non-perishable goods, stored w/o loss of quality, supply price elastic
• SS price inelastic: Fresh, perishable food, lesser can be stored for long time/held.
• SS price elastic: larger stocks of goods, more inputs can be held

Question 10

Rate at which costs increase

Answer 10

• less additional costs of producing additional output, firm more encouraged to produce for a given price rise
• more price elastic