PES

Question 1

Price Elasticity of Supply (PES)

Answer 1

measure of the percentage change in quantity supplied from a percentage change in price

Question 2

Elastic PES

Answer 2

the percentage change in quantity supplied is greater than the percentage change in price. PES > 1

Question 3

Any PES curve coming out of the y-axis has…

Answer 3

Elastic PES

Question 4

Inelastic PES

Answer 4

the percentage change in quantity supplied is less than the percentage change in price. PES < 1

Question 5

Any PES curve coming out of the x-axis has…

Answer 5

Inelastic PES

Question 6

Unitary PES

Answer 6

the percentage change in quantity supplied is equal to the percentage change in price. PES = 1

Question 7

Any PES curve coming out of the origin has…

Answer 7

Unitary PES

Question 8

Perfectly Elastic PES

Answer 8

any quantity can be supplied at the same price. PES = infinity. (Line parallel to x-axis)

Question 9

Perfectly Inelastic PES

Answer 9

supply is fixed and can not respond to price changes. PES = 0. (Line parallel to y-axis)

Question 10

Determinents of PES

Answer 10

1. Availability of FOPS
2. Mobility of FOPS
3. Spare production capacity
4. Level of stocks (inventory)
5. Durability of products
6. Length of production process
7. Time

Question 11

How does Availability of FOPS affect PES

Answer 11

if FOPs (land, labour, capital) are available, firms can quickly and easily use more FOPs in production. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 12

How does Mobility of FOPS affect PES

Answer 12

if FOPs are mobile (e.g. labour can do different tasks) they can be moved to different areas of production when needed. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 13

How does Spare production capacity affect PES

Answer 13

if firms have lots of spare production capacity they can easily increase production levels. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 14

How does Level of stocks (inventory) affect PES

Answer 14

Firms with lots of stock can sell finished products when prices change. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 15

How does durability of products affect PES

Answer 15

Durable products can be stored and sold when prices change. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 16

How does Length of production process affect PES

Answer 16

Products with a short production process are quicker to make. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 17

How does Time affect PES

Answer 17

In the long run, firms are able to make changes to their FOPs, production process and stock levels. Therefore, firms can respond quickly to price changes, and PES will be more elastic.

Question 18

Which Type of PES is preferred?

Answer 18

Elastic PES is preferable for firms so they can react quickly to changes in prices.