Price Elasticity of Supply Flashcards
What does price elasticity of supply measure?
Price elasticity of supply measures how responsive quantity supplied is to changes in price, how much does supply change when we change the price
When calculating price elasticity of supply, will the answer be positive or negative?
The answer will always be positive
When calculating price elasticity of supply the answer will always be positive, what does this represent?
This represents the positive relationship between price and supply, if price rises then supply rises and vice versa
When calculating price elasticity of supply the answer will always be positive, what does this represent?
This represents the positive relationship between price and supply, if price rises then supply rises and vice versa
Give two things that price elasticity of supply is affected by?
Availability of producer substitutes
Time based factors
What are producer substitutes?
Goods that a producer can produce as alternatives
If a product has many substitutes it has a high elasticity, why?
The business can easily alter its pattern of production if the price rises or falls.
If a product has few substitutes will it be supply elastic or inelastic?
Inelastic as the business cannot easily alter the pattern of production if the price rises or falls.
If it takes a long time to produce the product will it be supply elastic or inelastic?
Supply inelastic as the business cannot easily alter the pattern of production
If the production time of the product is short, will it be supply elastic or inelastic?
Elastic as the business can easily alter the pattern of production
Give two uses of price elasticity of supply?
Firms want to be able to respond quickly to changes in price and demand
To do this they need to make their supply as elastic as possible
Give one way that businesses can make their supply as elastic as possible (easily alter their supply when prices change)
Update their technology
Give three limitations of price elasticity of supply?
Values are based on estimates
Information used to calculate PES may become outdated
PES ignores any cost data
