PES and IED Flashcards
What is price elasticity of supply?
Measures the responsiveness of quantity supplied of a good or service to changes in price
What are the three time periods for elasticity of supply?
Momentary, short-term and long-term
Es = 0
Momentary; perfectly inelastic
Es < 1
Short-term; inelastic
Es > 1
Long-term; elastic
Momentary time period
- Unable to alter any factors
- Change in P causes no responsive in Qs
- Qs is fixed regardless of price
Explain the supply curve for momentary
Vertical line; firms only have a fixed amount of stock
Short-term time period
- At least one factor is fixed
- Not very responsive
- Change in P brings about less than proportionate change in Qs
Explain the supply curve for short-term
Steep gradient; firms can increase output by a small amount
Long-term time period
- All factors variable (none fixed)
- Very responsive
- Change in P brings about more than proportional change in Qs
Explain the supply curve for long-term
Flatter gradient; firms can increase output by a large amount
What is the law of supply?
As price increases, quantity supplied also increases and vice versa, ceteris paribus
When is price elasticity of supply likely to be elastic?
When a business has excess capacity, greater ability to store stock, and more time allowed to increase output
How do you calculate Es
(change in Qs/midpoint of Qs) / (change in P/midpoint of P)
How do you calculate Es using percentages?
%change in Qs / %change in P
