Price Elasticity of Supply (1.2.5) Flashcards
What is Price Elasticity of Supply?
Responsiveness of supply to a change in price of the good. Measures the relationship between change in quantity supplied and a change in Price. (When price of product changes how QS is affected)
What’s the equation for PES?
% Change of QS/ % Change of P
What are the factors that affect Price Elasticity of Supply?
-Spare Production Capacity
-Level of Stock Available
-Ease and cost of substitution/ability to switch resources
-Time it takes to increase output when price increases
What does a graph look like when there is Elastic Supply?
Will be more horizontal to show the increased change in Q.
Slide 31
What does a graph look like when there is Inelastic Supply?
Will be more vertical to show the decreased change in Q
Slide 32
A 10% increase in the Price of wheat led to a 5% increase in the Quantity supplied. What is the PES?
5/10=0.5
Does this mean price is Elastic or Inelastic?
Price is Inelastic
A 2% increase in the price of a PC led to a 12% decrease in the Quantity Supplied. What is the PES?
-12/-2=6
Does this mean price is Elastic or Inelastic?
Price is Elastic
What do each of the values of PES mean?
Side 35
What are the resources used in production called?
Factors of production
What are the four factors of production and what do they mean?
Capital- Man-made resources used in production (fertiliser)
Enterprise-Individuals involved in organising the other factors of production
Labour-Workers involved in the production process
Land-Non man-made resources used in production (coal)
What’s the difference between short-term and long-term production for the factors of production?
Short-run- Any period of time in which one of the factors of production is fixed
Long-run- Any period of time in which all the factors of production are variable. Producers able to vary all of their resources.
What’s the impact on supply if a subsidy is given to a firm?
Supply shifts to the right as supply increases as firm has more money
