PES

Question 1

Define Price Elasticity of Supply

Answer 1

• degree of responsiveness
• of quantity supplied
• due to change in price of gd itself
• ceteris paribus

Question 2

Measurement of PES

Answer 2

% change in Qss/% change in price

Question 3

Sign of PES

Answer 3

• positive
• supply curve upsloping
• positive relationship btwn price of good and uantity supplied (Law of Supply)

Question 4

Supply perfectly price inelastic

Answer 4

• PES=0
• any change in price
• no change in quantity supplied of good
• e.g. short-run supply of agricultural products (yield fixed at harvest time)
• Graph: Vertical line

Question 5

Supply is price inelastic

Answer 5

• PES more than 0, less than 1
• change in price of gd
• less than proportionate change in Qss
• e.g. sudden increase in price of primary products (e.g. wheat/crops), long gestation period for planting &harvesting)
• SS curve intersects x-axis

Question 6

Supply is price elastic

Answer 6

• PES more than 1, less than infinity
• change in price of good
• more than proportionate change
• curve intersects Y-axis
• producers respond more readily (manufactured products)
• not weather dependent, production can easily increase by increasing labour/machines’ operation hours

Question 7

Supply is of unitary price elasticity

Answer 7

• PES=1
• change in price
• proportionate change in Qss
• SS curve starts at origin

Question 8

Supply is perfectly price elastic

Answer 8

• PED equal to infinity
• price does not change
• constant cost per unit
• no capacity limits to production
• can change production easily when demand falls or rises
• e.g Netflix movie, songs on digital platform