PES

Question 1

Define Price elasticity of supply

Answer 1

Measures the responsiveness of supply given a change in price

Question 2

Define price elastic

Answer 2

Supply is said to be price elastic when a change in price causes a proportionately larger change in supply

Question 3

Define price inelastic

Answer 3

if a change in price causes a proportionately smaller change in supply, supply is said to be price inelastic

Question 4

State the determinants of PES

Answer 4

time required to produce the product
level of spare capacity
number of stocks/finished goods available
time
perishability of the product

Question 5

describe the effects of time required to produce the product

Answer 5

• the greater the amount of time needed to produce the product the more price inelastic the supply will be. If the product can be produced quickly, firms will be able to respond to changes in price rapidly .
• Therefore products with a a short production time tend to be price elastic supply

Question 6

Effect of level of spare capacity on price elasticity

Answer 6

• greater the spare capacity is in an industry, the more PE supply will be. This is because there will be factors of production available to be used in production.
• Therefore, if there was a price rise the industry/firm would likely to be able to respond quickly by increasing production

Question 7

What is the effect of the number of stocks/finished goods available

Answer 7

the more finished goods available, the more price elastic supply will be. This is becuase firms will be able to respond to a price rise by relasing some/all of these stocks o to the markets straight away

Question 8

Effect of time on PES

Answer 8

time gives firms the chance to expand or reduce production. therefore, the greater the time period, the more price elastic supply will be

Question 9

Effect of perishabbility on PES

Answer 9

Some products are more perishable than others e.g mushrooms. The more perishable a product is, the harder it is to build up stocks of it. Therefore, the more price inelastic in supply the product is

Question 10

Equation for PES

Answer 10

% change in Qs/ % change in price

Question 11

What does PES value of greater than 1 mean

Answer 11

Relatively elastic
- quantity supplied changes by a larger percentage than price so supply is relatively responsive to price. The curve will bemore sloping, starting on the price axis

Question 12

What does PES value between 0 and 1 mean

Answer 12

Relatively inelastic
- quantity supplied changes by a smaller
percentage than price so supply is relatively unresponsive to price. The curve will be
steep, starting on the quantity line axis

Question 13

What does PES value of 1 mean

Answer 13

unitary elasticity of supply

• quantity supplied changes by exactly the
  same percentage as price. This would be shown as a curve which starts in the origin,
  is steeper than an elastic curve but more sloping than an inelastic curve

Question 14

What does PES value of 0 mean

Answer 14

perfectly inelastic
- a change in price has no effect on output
so demand is completely unresponsive to price. This would be shown by a vertical
line.

Question 15

What does the PES value of infinity mean

Answer 15

Perfectly elastic PES is where PES=infinity : a change in prices means that quantity supplied falls to 0 and supply is very responsive to price. This would be shown by ahorizontal line