PES 1.2.5

Question 1

PES

definition

Answer 1

measures the responsiveness of quantity supplied given a change in price

Question 2

PES=

equation

Answer 2

%change in quantity supplied / %change in price

Question 3

greater than 1

Answer 3

supply is price elastic
for any price change, the change in quantity supplied will be proportionately greatert than the change in price

Question 4

less than 1

Answer 4

**supply is price inelastic **
when the price changes, Qs will change but proportionaly less than the change in price

Question 5

0

Answer 5

**supply is perfectly price inelastic **
regardless of a change in price, Qs will never change

Question 6

∞

Answer 6

supply is perfectly price elastic

Question 7

1

Answer 7

supply is unit price elastic

Question 8

PSSST

Answer 8

production lag
stocks
spare capacity
substutability of FoPs
time

Question 9

Production Lag

Answer 9

the longer the production lag is for a good or service, the more inelaastic supply is. hard to respond by increasing production when there is a large production lag. vice versa

Question 10

stocks

Answer 10

the larger the level of stocks the more price elastic supply is easy to respond to an increase i price or demand

Question 11

spare capacity

Answer 11

occurs when a business is not making full use of its available capacity

the more spare capacity, the more price elastic is. if price or demand increases and production needs to go up, businesses can utilise the spare capacity.
vice versa

Question 12

substitutability of FoPs

Answer 12

the more substiutable FoPs are in a given business, the easier it is for it to respond by increasing production when the price goes up or when demand increases. this means it price elastic

Question 13

Time

Answer 13

short run = price inelastic. very difficult to increase prodcution
long run = elastic