Lesson 12 - Price Elasticity Of Supply Flashcards
1
Q
What is price elasticity of supply?
A
The extent to which firms are prepared to increase output in response to a change in price
2
Q
What is the equation for PES?
A
Percentage change in Q supplied / percentage change in price
3
Q
How can you tell whether PES is elastic or inelastic?
A
<1 = inelastic
>1 = elastic
4
Q
What factors affect the elasticity of supple?
A
- the length of production time
- spare capacity
- time
- ease of factor substitution (producing new products)
5
Q
Why is it important to be aware of PES?
A
- if prices are falling, then we want to allocate resources to produce goods where prices are rising
