PES

Question 1

Price elasticity of supply (PES)

Answer 1

PES measures how much quantity supplied changes in response to a change in price.

PES = %△Qs/%△P

Question 2

Elastic supply

Answer 2

When PES is between 1 and ∞. Elastic supply is very responsive to changes in price.

Question 3

Inelastic supply

Answer 3

When PES is between 0 and 1. Inelastic supply is unresponsive to changes in price.

Question 4

Unitary elastic supply

Answer 4

When PES = 1.

Question 5

Spare capacity (PES)

Answer 5

More spare capacity, more elastic supply is

Question 6

Availability of FoP (PES)

Answer 6

More available FoP are, more elastic supply is (e.g, sandwich maker is more elastic than diamond ring maker)

Question 7

State of Economy (PES)

Answer 7

If the economy is doing worse, easier for businesses to increase quantity supply due to availability of FoP with producers being able to respond a lot to changes in price, meaning elastic supply

Question 8

The factors which affect PES

Answer 8

TEASS

Time

State of the Economy

Availability of factors of production

Spare capacity

Stockpiles and perishability

Question 9

Perfectly inelastic supply

Answer 9

When PES = 0. Supply will not respond at all to a change in price.

E.g. in the short run, even if the price increases by a huge %, the supply of coconuts will not change because the number of coconut trees is fixed

Question 10

Perfectly elastic supply

Answer 10

When PES = ∞. Supply will be infinitely responsive to a change in price.