PES and Supply. 1.2.4-1.2.5

Question 1

What is Supply?

Answer 1

Supply is the amount of a good that a producer is willing and able to supply at a given period of time and price.

Question 1

What are 5 factors that effect Supply?

Answer 1

Cost of Production
Indirect taxes
Subsides
New technology
Change in number of firms.

Question 2

What is PES?

Answer 2

Responsiveness of Supply following a change in price.

Question 3

What does it mean is PES>1?

Answer 3

Supply is price elastic, price change will result in an even greater change in supply.

Question 4

What does it mean if PES is < 0-1?

Answer 4

Supply is price Inelastic, this means change in quantity supplied will be smaller, than the change in price.

Question 5

What is the formula of PES?

Answer 5

% change in Q Supplied / % change in Price

Question 6

What does a Perfectly Inelastic PES mean and what is its value?

Answer 6

0

Completely unresponsive to a change in price.

Question 7

How can we remember the factors that influence the change in PES?

Answer 7

PSSST

Question 8

What does P stand for in PSSST?

Answer 8

P - Production Lag, if it is hard to increase the amount of production. PES is Inelastic.

Question 9

What does SSS stand for in PSSST?

Answer 9

Stock - How much stock is available on hand.

Spare Capacity - More spare capacity the more elastic as can respond faster to change.

Substitutability of F of P, if you can substitute what F of P are producing fast then PES is Elastic.

Question 10

What does T stand for in PSSST?

Answer 10

Time lag - Short run producers may find it hard to change F of P to produce more, however Long run they may be fine with it.