Micro: 1.2.5 Elasticity of supply Flashcards
What does Price Elasticity of Supply (PES) measure?
PES measures the responsiveness of quantity supplied to a change in price.
How is PES calculated?
PES = % change in Quantity Supplied / % change in Price
What does a steep supply curve indicate?
A steep supply curve indicates inelastic supply, where quantity supplied is not very responsive to changes in price.
What does a shallow supply curve indicate?
A shallow supply curve indicates elastic supply, where quantity supplied is more responsive to changes in price.
What is the range of PES values?
PES is always a positive number: 0 (Perfectly inelastic), 0 to +1 (Relatively inelastic), +1 to ∞ (Relatively elastic), ∞ (Perfectly elastic).
When is supply likely to be price inelastic?
Supply is likely to be price inelastic if it is complex to make, raw materials are scarce, the production process is lengthy, and if it is in the short run.
When is supply likely to be price elastic?
Supply is price elastic when the good is quick and easy to make and if it is in the long run.
Why is supply inelastic in the short run?
In the short run, it is difficult to adjust production because some factors of production are fixed.
Why is supply more elastic in the long run?
In the long run, all factors can be adjusted, allowing firms to increase production in response to price increases.
What do these values tell you about PES?
