factors affecting pes

Question 1

quickly what are the five main factors affecting pes

Answer 1

1) sparce capacity how much spare capacity does producers have
2) availability of factors of production how easy is it to find the factors of production needed
3) state of the economy the state
4) stockpiles and perishability
5) time period

Question 2

spare capacity (little spare capacity) - firm is full

Answer 2

if a firm has little spare capacity
(there capacity is quite full)-when prices rise they would not have the space or machinery to increase output by much in resonse. This suggests firms with little soarce caoacity cannot respond much to changes in price. This implies inelastic supplyy

Question 3

spare capacity (a lot of spare capacity)

Answer 3

if a firm , has a lot more spare capacity if the price were to rise, the firm would be able to use up its spare capacity and increase output to take advantage of the higher price.
This suggests that more spare capacity means a company is more responsive to a change in price, implying that supply will be more elastic

Question 4

availability of factors of production

Answer 4

explaining using 2 examples sandwhich and diamond ring
Because it’s so easy to find the inputs required to produce cucumber sandwiches, if the price of cucumber sandwiches went up, producers would easily be able to find more resources to produce more sandwiches (increase supply easily). They would therefore be able to respond a lot to a change in price, suggesting elastic supply.

However, it’s very difficult to find the factors of production to produce a diamond ring (mines gold diamonds). So, if the price of diamond rings were to rise, although producers would like to supply more diamond rings, it would be very difficult for them to find the resources to do so. As a result, they wouldn’t be able to increase their supply of diamond rings by a large %, so the supply of diamond rings would be unresponsive to price, suggesting inelastic supply.

Question 5

how available are the factors of production for this good ?

Answer 5

if there very available- elastic supply
if there is low availability - inelastic supply

Question 6

bad state of the economy

Answer 6

Counter-intuitively, it will actually be very easy for Kanye to expand his business.
If workers are unemployed-he’ll easily be able to find people to work for him. If shops are vacant- he’ll easily be able to find land for his new coffee shop.
this is suggesting elastic supply

Question 7

economy in a boom-state of economy

Answer 7

It will now be a lot harder for Kanye to increase the quantity of coffee he supplies because shops and employees and less available there are already businesses occupying land, they’re already occupied or employed. So Kanye will struggle to increase production, suggesting inelastic supply.

Question 8

summary of state economy

Answer 8

bad economy-means more factors of production available-suggesting elastic supply
good economy-factors are already in use-inelastic supply

Question 9

stockpiles and perishability

Answer 9

stockpile: stock of goods help in reserve
perishable goods are harder to stock pile
therefore perishables good eg cheese, is more likely to be inelastic. This is because cheese cannot be easily stored due to its perishability: cheese will go off if stored for too long, so large quantities of cheese cannot be stockpiled long-term.
As a result, if the price of cheese were to rise, producers wouldn’t have a large stockpile of cheese to begin selling to consumers, they would have to find more cheeses or make additional cheese from scratch which takes a long time. This means producers would not be able to respond much, suggesting inelastic supply.
however non perishable goods that are in large stock piles are very elastic as if price rises they already have enough stock/quantity and can immediately sell

Question 10

stockpile summary

Answer 10

ask your self
how much can we stockpile
if we can stoockpile a lot-eelastic suplly
if we can-inelastic

Question 11

time- what is short run and long run in terms of production

Answer 11

In the context of production, the short run is when at least one factor of production is fixed. The long run is when all factors of production can be changed.

Question 12

short run affect on quantity supplied

Answer 12

In the short run, race car producers would only be able to increase quantity supplied by a small % because they will be limited by their fixed factors of production. For instance, they might have a fixed amount of factory space, a fixed number of machines, and so even if the price of race cars goes up massively, race car producers will not be able to produce many more race cars because they don’t have enough space or machinery.

Question 13

pes in long run

Answer 13

in the long run producers can change factors of production and are able to respond making ped elastic

Question 14

pes= 0

Answer 14

supply is perfectly inelastic

Question 15

pes to infinity

Answer 15

Supply becomes more elastic, which means that producers respond more to changes in price, supply become more responsive and so our supply curve becomes flatter and flatter as our PES moves closer to infinity