Handout 7 (Price Elasticity of Supply)

Question 1

Price elasticity of supply

Answer 1

Measures the extent to which the supply of a good changes in response to a change in price of that good

Question 2

If t PES > 1 what is the type of elasticity?

Answer 2

Elastic supply

Question 3

Perfectly elastic supply

Answer 3

PES is infinite

Flat horizontal line

Question 4

Unitary elastic

Answer 4

PES = 1

Question 5

What is the equation for PES

Answer 5

PES = %change in quantity supplied/ %change in price

Question 6

How may the length of production period affect the PES

Answer 6

The longer the production period the more inelastic the supply is.

Question 7

How would spare capacity affect PES

Answer 7

The more spare capacity, the more elastic

Question 8

How would the ease of accumulating stocks affect PES

Answer 8

A large stock pile will make the supply elastic

Question 9

How would ease of switching between alternative methods of production affect PES

Answer 9

If it is highly available then it will make the supply elastic